The China model is unable to deliver continued prosperity

China’s economy, which once seemed unstoppable and was feted by foreign governments and business leaders eager to get on the gravy train, is now plagued by a myriad of problems, and a growing sense of despair is brewing among the business community. 

The fault lies not so much on supreme leader Xi Jinping, who is seen to exacerbate the situation with his fervent anti-capitalistic bend and relentless crackdowns on the private sector, but more so on China’s underlying governance structure.

China is controlled by the Chinese Communist Party (CCP), founded in 1921 on the principles of Marxism-Leninism, and is the sole ruling party when Mao Zedong defeated nationalist rivals in a civil war and founded the People’s Republic of China in 1949. In the Mao era, the Great Leap Forward and Cultural Revolution, among other campaigns, had a disastrous impact on the economy and resulted in tens of millions of deaths.

For the past 40 years since Deng Xiaoping started the open-door policy in 1978 to welcome foreign investment, China’s economy has grown by leaps and bounds, transforming the country into an economic powerhouse and becoming the second-largest economy globally. 

This remarkable growth has had far-reaching implications for not only China but also the entire world. Since taking over the rein in 2012, Xi has asserted China’s global power and has pursued a more aggressive foreign policy strategy, which has increased tensions with other countries, including the United States and its allies.

However, although Deng instituted economic reforms, he ignored the all-important political reforms, without which, the country is still locked in the grip of a totalitarian regime, and therefore, there is a limit to how far the economy can develop. 

In this system of governance, there is always the danger of yet another strongman or woman, who rise to the top echelon and in the quest to maintain absolute power, wreaked havoc on the economy.

Now, China is facing serious economic problems, including a property crisis, debt crisis, high youth unemployment, and the list goes on. Foreign investors are leaving, companies are reluctant to invest and hire, consumers are holding back on spending and would-be entrepreneurs are not starting new businesses. 

Amid the worsening economic environment, instead of coming up with targeted and concrete policies to help the economy, the CCP has fallen back on a familiar pattern of disinformation and misdirection, and chose to stop announcing economic, youth employment and consumer confidence data. 

Thus, a crisis of confidence was born. In reality, this lack of confidence in the Chinese economy is actually a reflection of the lack of confidence and a lack of trust in the CCP to do the right thing.

Pitfalls of communism

Communism has consistently proven to be an ineffective system unable to provide prosperity for its citizens. Its focus on egalitarian distribution of resources and abolishment of private property may seem appealing in theory, but history has shown that these principles overlook fundamental aspects of human nature, resulting in economic stagnation, lack of personal incentives, and limited individual freedom. 

Communist societies are characterized by centrally planned economies, where the state controls all means of production. This top-down approach concentrates power in the hands of a few, resulting in a lack of economic freedom and opportunity. 

The absence of competition and the inability to respond to market demands ultimately hinder economic growth. Without market mechanisms, pricing signals, and competition, resource allocation becomes inefficient and wasteful.

One of the most glaring drawbacks of communism is the erosion of individual freedom. It places control in the hands of the state, limiting personal autonomy and infringing upon basic rights. Under communist rule, citizens are subject to strict regulations, censorship, and surveillance, which impede personal development and stifles creativity. 

Moreover, the lack of economic freedom denies individuals the ability to make choices that align with their preferences and aspirations.

One of the major problems with communism lies in its disregard for the power of economic incentives. By suppressing individual motivations, it eliminates the driving force behind innovation, creativity, and hard work. 

In a communist system, where everyone is entitled to an equal share, there is no incentive to excel or take risks. This lack of motivation stifles productivity, hampers technological advancements and ultimately leads to economic stagnation.

Communism incorrectly assumes that humans are naturally altruistic and will work zealously for the greater good of society. However, history has repeatedly demonstrated that this assumption is flawed. 

While acts of selflessness do exist, individuals are primarily driven by their self-interests. Communism fails to acknowledge these fundamental characteristics, leading to a mismatch between theory and practice. 

The system also neglects the fact that humans possess different skills, abilities, and levels of ambition, which cannot be successfully homogenized under a communist regime.

The free market, with its system of supply and demand, efficiently allocates resources based on consumers’ needs and preferences. In contrast, communism eliminates market mechanisms, leading to the misallocation of resources, excessive bureaucracy, and inefficiency. 

Without the dynamic balance of supply and demand, communist countries struggle to meet the diverse needs of their citizens. This often results in chronic shortages, rationing and a decrease in overall living standards.

Communism’s inherent disregard for private property rights leads to the misuse and degradation of resources. When no individual owns and has responsibility over a particular resource, it experiences the tragedy of the commons. 

The tragedy of the commons is an economic problem where the individual, out of self-interest, over-consumes a public resource (also known as a common) at the expense of society, thus resulting in under-investment and total depletion of a shared resource.

Therefore, in a communist country, in the absence of incentives for preservation and development, resources are often exploited, overused, or neglected, ultimately resulting in environmental degradation and a scarcity of vital resources needed for prosperity.

Photo credit: iStock/ master1305

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