China and the Turning Point in Global Economic Affairs

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China is taking multiple actions to boost productivity and sustainably strengthen its economy. If successful, China's efforts come at the expense of the U.S. and other western nations that are not as willing to leverage the benefits of productivity.

I abhor communism in part because of its economic shortfalls and restrictions on basic human rights and freedoms. However, communist rule has a benefit. In China's case, the government can take actions without broad government approval, regardless of what its people think. Today, it is using its authoritarian power to better the economy and raise collective prosperity. Some of the productive actions it is taking are much more difficult for democracies to accomplish.

I do not advocate communism. Far from it, in fact. That said, I hope our leaders are paying attention to the economic substance of the actions China is taking. If I am correctly reading China, and if it avoids a revolution, China is taking steps to reform its economy, possibly making it the world's largest economy.

If the U.S. and other countries sit idly by, we may look back at today as a turning point in global economic affairs. The U.S. does not have to cede economic growth. But it must readapt capitalistic logic, which, ironically, China is slowly grasping.

Productivity drives economic growth

Economic growth is a direct function of productivity, which measures the amount of leverage an economy can generate from its two primary inputs, labor and capital. Due to the limited nature of both labor and capital, they are not dependable to produce economic growth over extended time frames. Productivity drives more economic growth with the same or less labor and/or capital.

China has grown extensively on the back of a massive population that was living in poverty. It leveraged its massive population with the extensive use of natural resources and financial capital. That has served it well thus far, significantly boosting economic activity and the prosperity of its people.

China finally realizes productivity growth is vital if it is to continue to grow.