In a recent survey reported by USA Today, one out of two American millennials preferred communism to capitalism, and 22% said they have a favorable impression of Karl Marx. For almost any American older than a millennial, this came as a complete shock, and, with few exceptions, has been characterized as a failure of the American education system to accurately portray history.
But is that a fair assessment?
I have a degree in Economics from Middlebury College, where I graduated with honors. I have spent an entire career in Corporate America, more than half of that in executive management. And I lived and worked for nine years in China, a collectivist state, where I managed a factory and a company, referred to as a Wholly-Owned Foreign Enterprise (WOFE), for a public American corporation. I believe, as a result, that I bring some experience and credibility to the topic.
Let’s start the assessment by dropping the labels. All of the relevant terms—democracy, capitalism, communism, socialism, and fascism—raise a lot of dust but have lost all of their original meaning. China is not a communist state. It is a collectivist state run by the Communist Party of China. The Chinese themselves refer to it as “socialism with Chinese characteristics.” I will refer to it simply as Chinese collectivism.
The United States, on the other hand, is not a pluralist democracy. The Founding Fathers went to great lengths to avoid the potential tyranny of the democratic majority. The three separate but equal branches of government (legislative, administrative, and judicial), the Electoral College, the unique structure of the US Senate, with two senators from each state regardless of population or economic strength, and the very specific and largely irreversible allocation of certain powers to state and local governments, all are designed to limit the power of the plurality.
Both China and the US allow free market forces to “manage” large parts of the economy. There are, however, two big differences. The first is that almost all property in the US, including intellectual property, is privately owned. In China, on the other hand, the government retains ownership of much of the common property, including all land and the natural resources it holds.
The Chinese collective also retains ownership and control of key strategic industries that have a broad social impact, including most of the banks and much of the energy sector. The Chinese government, moreover, maintains a well-defined national industrial and economic plan that guides public and private investment, in part through taxes, and provides strategic direction to the regulatory branches of government.
There are no government owned companies in the US, although the US Post Office and NASA are independent agencies of the US government. The General Services Administration (GSA), moreover, another independent agency of the federal government, oversees the expenditure of approximately $66 billion in government spending each year and manages about $500 billion of US property.
In total, government spending by the Chinese and US governments is about the same, at roughly $2.8 trillion per year; although the US economy is larger in total.
The US, however, has no national industrial policy, despite the amount of money spent by the government each year. While China targets key industries for development and protection in the interest of national security and social and economic development, the US, in theory, leaves such decisions up to the private sector.
That’s only in theory, however. In practice the US has a well-defined national industrial and economic policy. There has to be given the amount of money the government spends each year and the regulatory influence the government has over the economy. The real difference is that in the US government policy is left largely up to private individuals and corporations to define. Corporate lobbyists and corporate government relations staffers play an active role in actually writing government legislation and regulation, always, of course, in an attempt to promote the self-interests of their employers.
One of the primary vehicles for economic policy in the US is the US Tax Code. The Code itself, along with the supporting documentation and legal interpretation, runs to 70,000 pages in total, most of which is devoted to defining tax breaks and other financial considerations designed to favor one sector of the economy, or one segment of any given sector, over another. The 2017 Tax Reform recently approved by the US Senate itself required more than 400 pages to articulate what was supposed to be a simple reduction in tax rates. It wasn’t, of course.
That is why despite a top corporate tax rate of 35%, most large corporations pay considerably less. Google, in its last reported year, paid only 19%. Apple, one of the most profitable companies on the planet, and which holds $230 billion in cash in overseas accounts, paid only 25%. Asset rich ExxonMobil and GE both enjoyed tax credits, effectively sheltering all of their income from taxation, all based on provisions buried somewhere in those 70,000 pages.
Another way in which national policy is established in through government regulation and, once again, much of that has been turned over to the private sector, allowing business people and corporations to use regulation to benefit themselves and tilt the playing field in their favor. Many of these regulations are fraudulently sold to the public in the name of consumer protection, but the protection of certain businesses and their profits is the real objective.
In the state of California, for example, you cannot cut hair for a living unless you receive 5,000 hours of training at a state-accredited for-profit barber school. It’s doubtful that enough Californians complained about bad haircuts to push the state legislature into action. It’s far more likely, and almost certain, that the barber schools, in partnership with the existing barbers looking to sustain higher prices, lobbied for the legislation and were readily obliged.
In my own state of Michigan Tesla cannot sell its cars directly to consumers utilizing the business model it has built its business on. And the reason is not Ford, GM, or Chrysler. The reason is the independent automobile dealers association that has used its political muscle in Lansing to push for such protection. Michigan is not alone. Independent dealers in many states have successfully lobbied their state legislators for protective legislation that goes well beyond any legitimate consumer interest.
The list is endless. It was recently announced that a common medication for erectile dysfunction may soon be available over the counter in the UK, thus reducing its price and freeing up doctors to spend their time on more pressing health matters and thus reducing health care costs. In China, many common medicines, except narcotics, are available directly from pharmacists without a doctor’s prescription.
The US, on the other hand, has one of the most restrictive set of pharmaceutical regulations on the planet. It’s one of the reasons the US spends more on healthcare than any other nation despite the lack of universal insurance coverage. It’s all justified on the basis of consumer protection, of course, but it coincidentally maximizes the profit of the big pharmaceutical companies and, by the way, we have a huge opioid epidemic anyway. (Why don’t we treat prescription drugs like guns? Opioids don’t cause addiction. The people who abuse them do.)
In the end, as I’ve noted, the biggest difference between Chinese collectivism and what I will call Americanism is in who defines government policy and who owns the country’s collective assets.
No individual or corporation owns land in China. It’s owned collectively by all of the people of China and managed on their behalf by the Communist Party. As a practical matter, the distinction doesn’t have much impact on daily life. The feel is the same. Both my home in China and the factory I managed sat on land owned by the people of China but managing either one felt pretty much the same as it does here. As they say, possession is nine-tenths of the law.
If the day to day difference between collective ownership and private ownership of property is immaterial, it has a huge impact on who decides how to use that property. In the US, that right resides with the individual and the private corporation. In a collectivist state, that right resides with society at large.
Over time, of course, the US has discovered the inherent weakness in private ownership of property and has sought to restrict usage through zoning laws. The local zoning board, however, is entirely local and fairly easily swayed in favor of development by their aligned interests and political pressure, so the practical effect has been very limited. Wealthy developers still have the power to do what they want in the pursuit of profit.
What we can’t do as a country, however, is build new airports, new train systems, or more efficient highways. And that’s because the rights of the individual, the cornerstone of Americanism, are protected by a strong judicial system. Large infrastructure projects can be tied up in the courts for years, if not decades, effectively prohibiting the kind of large infrastructure projects that the Chinese excel at. (Many experts believe that this deficiency alone, will ultimately compromise America’s global leadership.)
America can’t, in other words, adapt to technological innovation. We didn’t have airplanes, automobiles, or high-speed trains, all of which require land-intensive infrastructure, at the time of the nation’s birth when the principle of private ownership of land was established. We had canals and roads and harbors, but these were easily accommodated through the legal concept of eminent domain. Even that collective protection, however, has been severely eroded by the courts and the politicians, both of which are easily exploited by wealthy developers and other corporate interests.
In theory, of course, the American government is accountable to the people. That theory, however, has been severely tested by the passage of time and the steep cost of running a successful modern political campaign. Money, not ideology, now controls the American political process. If there is anything to be learned by the recent rash of political resignations and decisions not to seek re-election it is that political power does not accrue to the men and women of the highest integrity and civic mindedness. It accrues to those who can harness the most money and power.
So, in the US, in theory, we have a paragon of free market capitalism and democratic freedoms. And in China we have the last remaining socialist superpower, where the press is censored, there are no free elections except at the local level, the government retains ownership of key industries and the country’s largest companies, and there is no private ownership of land.
In practice, however, the US, by its own admission, suffers from ongoing sexism, racism, and religious prejudice. Mass murder is almost a daily event. Drug addiction is rampant, wages are stagnant and have been for decades, inequity in wealth and income is expanding, and social unrest and general disillusionment is now the standard.
China, on the other hand, in practice, has raised 300 million people out of poverty in one generation, violent crime and mass murders are rare, the best schools are equally accessible to everyone, virtually everyone is employed, wages have been rising at rates far above the GDP, and the President’s approval rating is among the highest in the world, many times that of our own American president.
Why the disconnect? In a word, context.
Personal freedom and economic well-being do not exist in a vacuum. They exist in the context of a complex web of political, social, technological, and economic conditions that, in the case of the US, have changed dramatically since the country’s founding.
Consider this small sampling of facts:
- There were 2.5 million people living in the US in 1776. There are 315 million people here today.
- The entire landmass of the original thirteen colonies was 339,000 sq miles. The US today covers 3,678,000 sq. miles.
- The only guns available when the Second Amendment was ratified in 1791 were the single fire musket and the flintlock pistol. In the hands of the most skilled operators they had a capacity of about three rounds per minute and were accurate only at very short distances. The Las Vegas shooter, who killed 58 and left 546 injured, by comparison, was able to fire 1,100 rounds in under ten minutes, massacring innocent civilians at a range of almost 500 yards.
- The first train locomotive to run on US rails did not go into operation until 1829. The first American car was not built until 1893. The first commercial flight did not take place until 1914.
- The pharmaceutical industry, as we know it today, did not come into existence until the mid-20th Century.
- The Internet has been in widespread existence for less than thirty years.
- The 16th Amendment, legalizing the income tax and creating a powerful tool for social and economic engineering, was not ratified until 1913. The tax system we know today did not come into existence until 1954.
In short, our world, and the context in which our political and economic systems operate, has changed dramatically. Yet we still attempt to manage it all with political and economic systems that are built on the ideological premise of the supremacy of the individual over the collective.
Advances in technology drove much of this change. Technology has entirely transformed how we work, how we live, how we travel, and how we communicate.
At the time of our founding, our news was limited to the local newspaper and the men and women motivated enough to grab a soapbox and stand on a street corner. Politics was a part-time profession carried on by people moved by a sense of civic duty. The world of the average American, in short, was a decidedly local world and he or she lived and worked with relative autonomy.
Technology, both directly and indirectly, has made the world both bigger and smaller, connecting us all in real-time. It has also, however, driven the commercialization of every aspect of our lives. It is no longer possible to live a dignified life of poverty, even if you so choose. There is virtually no alternative to money. Even the original social safety net—nature—has been taken away. Living as a self-sufficient farmer or hunter-gatherer in the wilderness is no longer an option. The socio-economic complex in which we live forces everyone into the economic game. Compete or perish, with perhaps a short and undignified stay in government entitlement along the way.
As America grew and prospered, however, an unintended consequence began to emerge. Most of the wealth creation went to a relatively small segment of the population. As time went by, moreover, the system was incapable of correcting itself. The rich, now called the 1%, continue to get richer while the other 99% struggles to get by. Many, in fact, have failed in their quest and are either homeless, addicted, or both. And, most importantly, their hope is lost.
There are more than 540 billionaires in the US today, who share a collective net worth of $2.4 trillion, more than the total GDP of India, a country of 1.3 billion people. Half of Americans, however, make less than $30,000 per year and have virtually no personal savings and sizable amounts of debt. (Student debt is a national crisis.)
Another unintended consequence of this massive wealth creation and its concentration is the creation of a permanent political class. An economy this big and a society this large require full time management.
The two developments—the enrichment of the economy and the creation of a professional political class—were fundamentally inter-related. Modern politics takes a lot of money and the Founding Fathers made no provision to provide it. The need for private funding, in turn, further embedded private citizens of wealth into the political process. And when, in 1886, the U.S. Supreme Court applied the 14th Amendment to give corporations the same legal rights, other than voting, of the individual citizen, the modern era of politics was born.
And it’s not working. And it’s not working because the context has changed. We live in a very different world than we did in 1776 and yet we are attempting to manage it with the same individual-centric political and economic systems developed more than two centuries ago.
The People’s Republic of China, on the other hand, has been in existence for a little over 60 years. And while the Communist Party of China is still in charge, the economic and social management systems have been entirely transformed. Chairman Mao himself would surely not recognize the modern China.
By adapting to change, however, China has emerged as a global superpower and many are predicting that the American Century will soon give way to the Chinese Century.
Many in America, of course, will argue that China transformed itself by following the example of the US and adopting many of the provisions of free market capitalism. It is these same people, moreover, who believe that the path forward should be to double down on what has worked in the past. We don’t need to adapt, in other words, so much as we need to go back to the perceived purity of the political and economic systems we employed two centuries ago.
It is pure folly, of course. Even if we could turn back the clock, which we can’t, those systems and ideals would no longer work. The result, in fact, would be disastrous; on a par with asking corporations to live without computers or teenagers to live without smart phones.
Technology has so empowered the individual that no single individual can be given the kind of power historically granted to the individual American. It is simply unworkable. What worked when we were few and largely isolated and spent our days farming and hunting, will simply not work today. It would be like giving every colonial soldier a nuclear bomb and telling them to go win the war. They would ultimately win the war, but like the 1%, would dramatically transform the country itself.
In the end, the millennials are right. They may have the details wrong. (The referenced study’s sponsor noted that most of the millennials who voted for communism were unable to define it correctly.) They are, however, right in their instinctive belief that in the modern world in which we live and work, the collective society, not the individual, must reign supreme.
Let’s not call it communism, or fascism, or any of the traditional –isms, because their critics are right; they didn’t work either. And libertarianism, the system of choice for both the alt-right and Silicon Valley, won’t work any better. That would be just doubling down on what we already have and would simply accelerate our decline.
And I am not suggesting we simply imitate the Chinese or try Marxism yet again. The former, for a lot of social and cultural reasons I don’t have space for here, won’t work in America. And Marxism, while ideologically attractive at some level, simply isn’t tenable.
What we need instead is a new form of collective governance that puts the interests of the collective society above the liberties of the individual and manages our collective interests and assets in a way that allows some level of individualism without allowing it to suppress or circumvent the collective good.
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