To many, the economic torch already has passed from old to new. They see today’s emerging markets as tomorrow’s international economic engines. What Britain was to the 19th century and America to the 20th, China will be to the 21st. Such a perspective sees the trees only to miss the forest. What is dawning is not another country’s “century,” but capitalism’s third.
The recent Group of 20 meeting of the world’s 20 most significant economies was a testament to the last half century’s economic growth. Fifty years ago, America was the world’s lone economic superpower. Just 30 years ago, Japan was breaking the Western monopoly on economic superiority.
Today, more than half of G-20’s membership comes from what once were dubbed Third World nations - Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.
It is easy to seek to put another national link on the global growth chain. In the 19th century, free markets at home and free trade abroad unleashed Britain. Its natural attributes hardly predicted such an outcome, yet an island on the periphery of Europe became the world’s predominant economic power.
The same principles applied to a much vaster nation produced an even more impressive result in 20th-century America. A nascent nation at the 19th century’s beginning, it was the world’s economic leader slightly more than 100 years later.
The last 50 years’ significance comes from their clarity: What primarily propelled England and America forward was capitalism. Because of their historical, political and cultural overlaps, it is easy to overlook capitalism’s impact when viewing just Britain and America. Yet recent global economic successes have strayed further from the noneconomic roots, remaining attached only to capitalism.
In contrast to other economic ideologies, capitalism alone is differentiated by its negative emphasis on the state. Capitalism sees the state’s absence as central to the economy’s success; other systems see the state’s presence as central to the economy’s success. Its “markets over mavens” approach has only become more imperative as societies grow more complex. Planning has failed repeatedly in far simpler societies. With planning’s failures manifest and societies’ complexity growing rapidly, planning is neither preferable nor possible today.
Capitalism straddles today’s globe. Every economic competitor has fallen before it - predecessors, feudalism and mercantilism, and would-be successors, communism and socialism. It is the greatest wealth generator in history, and it has done, or is doing, so on every continent and in every culture.
In the broad span of its ascendancy, the current economic crisis is barely a blip. Yet many on the left seek to advance the dubious argument that capitalism precipitated this crisis. Even more preposterous is their assumption that planned economies are devoid of crisis.
Those systems choosing planning over capitalism exist in perpetual disequilibrium. They are distinguished not only by their reliance on the state, but in an inability to right themselves. As a result, they move to ever greater disequilibrium.
Capitalism remains the only system that can fix itself. As much as we may lament its cures on occasion, competition makes capitalism self-equilibrating.
As with a body, the fundamental health of an economic system lies not in never getting sick, but in its response to contagion. The current financial crisis apparently has ended in less than two years. Compare that to the continuous degeneration of communist and socialist systems.
Communism’s response to capitalism offers two versions of the same tale. In the late 1980s, communism imploded across Eastern Europe and the Soviet Union. The rot of communism sapped the economy, the state collapsed, and capitalism rushed in.
China and Vietnam, despite capitalism being antithetical to their ruling ideologies, have sought to harness capitalism’s productivity to sustain their economies and, they hope, their power. Rather than imploding, they will explode. Both have unleashed forces they can neither control nor roll back. And even if successful in the impossible, they would only - like North Korea and Cuba - succeed in falling further behind the Asian capitalists.
The rise of capitalism well beyond its Western roots is not just its own validation but also its refutation of the managed economy. The managed economies fell first in their most extreme forms but are no less endangered in their milder forms of entitlement societies - those seeking to manage the necessities to which all are “entitled.”
The West, having first received capitalism, now faces its own reckoning as its entitlement societies increase their tax and debt burdens and decrease their competitive advantages. The first nation to resolve this will reap an enormous advantage. Those that fail or that deny the necessity to resolve it need only look back to the history that is rapidly gaining on them.
J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a congressional staff member from 1987 to 2000.