Who Will Kill the Golden Goose – The Entrepreneur – First?
In an earlier paper, “Welcome to Fascist America,” posted in georgeeconomics.com in July 2021, I discussed the reemergence of the Fascist model as a consequence of the socialist/communist agenda of the American left. There is little doubt that the Democrat Party’s overall agenda is eroding the free market in America. If the Democrat Party is successful in their woke driven, socialistic welfare spending agenda aimed at making the general public dependent on the Federal (central) government, coupled with the massive regulatory and tax increases they propose, then the potency of the American entrepreneurial free market system will be seriously compromised. As I discussed in the above referenced paper, big business can navigate those treacherous economic waters proposed by the Democrat party, but small business entrepreneurs will be financially squeezed if not destroyed. Unless the voting public reverses the balance of power in Washington DC, over time only big government and big business will have any relevant power in whatever market that exists. This is a text book example of the fascist state. The socialist inspired Democrat Party will find it difficult to move the socioeconomic structure past fascism to a pure socialist/communist format because they will need big business to survive and for the country to have any economic relevancy. The free market vibrancy of the American entrepreneurial driven economy will cease to exist and the stagnancy of an economy driven by big government and big business equals will become the foundation of a welfare state.
China presets a totally different situation. Given the present actions of the central communist government in China to curtail the activities of numerous large, highly successful corporations in critical sectors of their economies, it appears as though they are reigning in these rapidly expanding success stories before they become too big to rein in without seriously damaging their overall economy. At first glance, it appears as though the Chinese Communist Party is moving now to curtail any threat to their control of the country or to their ability to dictate all political messaging and individual rights. Even though these social control issues definitely play a substantial role in their decision making, there are other important factors driving their actions. The Chinese economy is going through many of the ongoing pains of a rapidly expanding, mostly developed economy, including the problems associated with the concentration and abuse of market power. China has antitrust laws much like those in the United States and in many cases the automatic triggers related to market concentration have been reached. American antitrust statutes clearly set 75% as the market concentration threshold for the determination that a company holds unlawful monopoly power.
A number of prominent Chinese companies, such as Alibaba and Tencent and other tech entities, have achieved or are close to this level of market dominance. By reining in these companies without critically damaging them financially, the Chinese Communist central government sends out a message that they are limiting anti competitive market power and at the same time enforcing their ultimate autonomous control of all aspects of business in China. Under this cover they are also eliminating any private enterprise that interferes with their on going policies (e.g. For-profit education other than trade skills that compete with state controlled activities have been decimated by regulatory restrictions imposed by the central government). It is clear that the Chinese communist party will never allow a company, a group of companies or an industry to become so powerful that, individually or in aggregate, they pose a threat to their overall control of the country.
As I have noted in a number of previous papers China’s economy is a quasi free market system with policies that favor state owned enterprises that compete with private sector companies, some of which have significant state ownership participation, especially in sensitive tech oriented areas. Free market forces and the magic supplied by resourceful entrepreneurs, coupled with intellectual property theft and unfair market practices (especially related to international trade and access to the Chinese market), have served their economy well. Entrepreneurs and the private sector in China, as in the United States have accounted for a vast majority of economic growth (for China starting in the 1990’s) as well overall employment. Restricting the private sector from becoming as powerful as the central government will effectively accomplish the goal of ultimate control. Constraints on the private sector, however, will also substantially diminish long run economic growth and restrict individual freedoms that go hand in hard with the free market.
Even though entrepreneurs and free market forces have driven China’s growth, enabled by the opening of China’s markets and economic reform, they are now in the bulls eye of the communist government’s ideological crackdown along with much of the tech industry and any other business entity that the Chinese Communist party views as a threat. There is little doubt that the Chinese Communist party will never allow any private business or business sector to become sufficiently powerful to stand on an equal footing with the central government which negates the possibility of China becoming a fascist state. If the Democrat Party is successful in passing Biden’s proposed massive tax increases, including a loosely defined, seriously flawed wealth tax, entrepreneurs and small businesses of all types will be devastated. If the voting pubic does not wake up and reset the balance of power in Washington DC the American economic landscape will increasingly, over time, resemble the fascist state. Sadly, the Democrats have taken cover underneath selective macroeconomic modeling generated by hard core Keynesians which consistently underestimates the impact of tax policy and overestimates the impact of government controlled spending on economic growth (see the paper “Keynesian Thumb on the Scale” in georgeeconomics.com). Their radical tax and spend policies are so potentially harmful that even prominent democrat economic advisors, such as former Secretary of the Treasury Larry Summers, have very publicly sounded the alarm bell that the proposed policies are extremely dangerous.
The clampdown on private enterprise in China should not be unexpected due to the rapid rise of numerous private sector companies viewed by the Chinese Communist party as significantly threatening to their control of the economy and consequently the country. The timing of their crackdown on free market activities by the Chinese Communist leadership clearly suggests that they are taking advantage of the cover offered them by the Democrat Party’s irrational spending and tax agenda which will “snuff out” the strong growth of the American economy resulting from Trump era policies. Without that cover the constraint of these large and small efficient private sector enterprises by the Chinese communist party would be significantly more visible and difficult to undertake. On the other hand, if the Trump era fiscal policies were allowed to continue driving the American economy it would be far more difficult for the Chinese Communist party to pursue growth restricting policies.
Unfortunately, to the detriment of the world economy, the two largest economies in the world appear to be either proposing or taking actions that will ultimately crush entrepreneurs if those policies are fully implemented and carried out over an extended period of time. In the case of China these policies are being carried out by their communist leadership to maintain total control of society. In the case of the United States, these policies relate to short run and / or long run funding of a socialist spending agenda. Between the two leading economies in the world, the one that succeeds best will be the one that continues incentivizing the entrepreneur rather than instituting policies that cripple him or her. The loser will be the country that wins the race to the bottom by totally crushing the entrepreneur. The worst thing that can happen to the world economy is that in a race to the bottom, where out of economic ignorance, both economies kill the “golden goose”.