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May 30, 2019, Thursday

The Day After: Trish Regan vs. Liu Xin

How do you define crony capitalism?

The Day After: Trish Regan vs. Liu Xin
The rumble in the Fox jungle turned out to be less street fight and just a run-of-the-mill interview by Trish Regan (@trish_regan) playing tough questioner to Liu Xin (@thepointwithlx), an alleged member of the Chinese Communist Party. (She is not a member of the CCP. But saying so was an easy way to win some cheap points out of the gate with Western audiences.)

If there's something that this "debate" underscored, it's the importance of "framing." As moderator-participant, Regan framed her questions in a way that implicitly assumed the truth of her US-centric worldview. To that extent, the exchange turned out to be more rhetoric and flourish than substance. Still, it forced Xin on her back heels for most of sixteen minutes.

"How do you define state capitalism?" Regan inquired, cosplaying her role as free market heroine and champion of Smithian capitalism. Of course, the US is very far from free markets. And Regan is not really a free market heroine. (But like democracy, justice and liberty, Americans love liberal slogans and like to imagine that they are)

Like China and most economies, including Europe, the US is a mixed system. If the China is socialism with Chinese characteristics, as Xin declared, then America's economy is capitalism with American characteristics, viz, a kind of neoliberalism that marries big business with government. The two economies aren't as far apart as Americans like to imagine. Over the past 50 years government expenditures as a percentage of US GDP averaged just under 40 percent. In the past 10 years, American dirigisme in the name of "too big to fail" would make Mao and Lenin red with envy.

There's an old joke from the 1980s: "How long have you been beating your wife?" The funny is that any response makes you a wife-beater. The correct riposte is to reject the question.

China steals American IP. It's widespread and massive in scale. How can America do business with a country it can't trust? Trish asked.

Yes, conceded Xin. There is rampant IP theft by China. We have to do better, she said.

China forces technology transfers on companies who want to do business in China, Trish declared.

Ummm, yes, indeed. But it's been profitable for Western businesses to do business in China, Xin weakly demurred, once again conceding Trish's narrative.

China is the world's second largest economy and yet it continues to borrow from the World Bank. When will China grow up? Trish demanded.

China wants to grow up, Xin meekly averred. China doesn't want to be a developing nation forever. But, but . . . China is still poor on a per capita basis. Indeed.

How about eliminating all tariffs? Trish offered, burnishing her free market creds.

Sure, agreed Xin. Good idea. However, complex web of international agreements might make that difficult, Xin vacillated.

Trish's questions were simple, straightforward but contained strong assumptions. However, to the extent it's a debate, it was Xin's job to parry emphatically and counter with her own strong offense, the kind we heard when she passionately said Trish spit fire from her eyes. But there was no fire from either host last night. If Trish was smug and smiley, Xin was equally diffident. It seems neither host wanted to "throw mud."

Even if we assume that IP theft is rampant in China, unless you can argue it's intentional and systemic, it's really neither here nor there. It's a problem, like many pressing problems around the world, for governments to work out.

Most will agree that "forced" technology transfers are at minimum bad form. It's a kind of blackmail for the privilege of entry. However, no companies are being forced to give up its IP. It's incumbent on Western companies to make better long term agreements and work with authorities at home and abroad to achieve respectful, workable partnerships.

China's economy may be the second largest in the world and even first in terms of PPP, but with 1.4B people, on a per capita basis, it's poorer than Mexico. To ask China to assume first world status when most of its citizens continue to live in grinding poverty seems unfair.

Are zero tariffs really good outside economic textbooks? Are there other factors to consider, such as security, economic autonomy and for emerging economies, nurturing future industries? Notwithstanding Trish's bravado, it's uncertain America would do away with all subsidies for industries, including tariff protections. Ditto for China.

Few doubts, the status quo cannot continue and President Trump is right to question it. America can't be a debtor nation forever. But unilateral tariffs and threats are probably the wrong approach, particularly when fault lies primarily with oneself.

Two decades ago, China was just an emerging economy that eagerly worked for cheap wages, low profits on behalf of American multinationals. It became America's factory because America wanted cheap sources of labor, supplies and manufacturing. American economists said deficits didn't matter. Manufacturing didn't matter. Wall St. soared and hedge fund managers cheered. Fed Chairs Greenspan, Bernanke et al printed money like drunken sailors. They argued more money, lower rates, lifted all ships.

Some would contend that China is a byproduct of American neoliberal capitalism. What America chose not to make, China did. But America's mistake was to assume China would remain poor and backward forever. It hoped China could become a Latin America for cheap labor, a colonized economy for OEM manufacturing. But China chose to be sovereign.

"How do you define state capitalism?" Trish asked, as if it's only in China that business and government are conjoined.

But if China is state capitalism, what is America? Question for Trish: "How do you define crony capitalism?"

Because that seems to be what America is. Free market? Only in libertarian dreams.
free marketstrish reganliu tradeneoliberalismcommunismstate capitalismeconomics