Historical comparisons are always risky. This is particularly so when comparing different eras in vastly different countries like the US and China. Similarities can actually obscure more important differences.
Nevertheless, familiar knowledge can help build a framework for understanding. Obviously, present-day China is radically unlike any point in US history. But with that caveat, it bears some striking similarities to one part of our past. Today we’ll look at that period and see what it can tell us about China under Xi Jinping.
As I mentioned last week in Xi’s Changing Plan, China could be an economic partner as well as competitor, cooperating in ways that benefit its own people and the entire world. And while both our economies are bound together, that doesn’t seem to be the Chinese goal anymore, if it ever was. The US side clearly thought China would become more capitalistic and open as it became more prosperous and entrepreneurial.
This has important investment consequences you need to understand. We’ll start with some US history and the see how China’s course may be both similar and sharply different.
Pendulum Swing
The US hasn’t always been the world’s dominant economy. Our first step in that direction may have been after the Civil War in what is now called the “Gilded Age.” Here is how Wikipedia describes that time.
In United States history, the Gilded Age was an era that occurred during the late 19th century, from the 1870s to about 1900. The Gilded Age was an era of rapid economic growth, especially in the Northern and Western United States.
As American wages grew much higher than those in Europe, especially for skilled workers, and industrialization demanded an ever-increasing unskilled labor force, the period saw an influx of millions of European immigrants. The rapid expansion of industrialization led to a real wage growth of 60% [JM comment: this period was one of the longest periods of outright deflation in US history, thus the emphasis in this article on “real” wage growth], between 1860 and 1890, and spread across the ever-increasing labor force. The average annual wage per industrial worker (including men, women, and children) rose from $380 in 1880, to $564 in 1890, a gain of 48%.
Conversely, the Gilded Age was also an era of abject poverty and inequality, as millions of immigrants—many from impoverished regions—poured into the United States, and the high concentration of wealth became more visible and contentious.
Thirty or so years of rapid economic growth brought many changes to the US. You could say the same of the last 30 or so years in China. In both cases, occasional crises popped up but subsided. The growth was uneven, too.
In the US example, large monopolistic trusts developed in railroads, steel, oil, and other key industries, facilitated by corrupt politics. Wealthy tycoons built giant mansions and summer homes in Newport, Rhode Island, to popular acclaim as well as criticism. Again, we see similarities in China’s recent past.
The pendulum eventually swings to correct such excesses. Around 1900, the Gilded Age gave way to a “Progressive Era.” From the Wikipedia entry…
The Progressive Era (1896–1932) was a period of widespread social activism and political reform across the United States of America that spanned the 1890s to the 1920s. Progressive reformers were typically middle-class society women or Christian ministers.
The main objectives of the Progressive movement were addressing problems caused by industrialization, urbanization, immigration, and political corruption. Social reformers were primarily middle-class citizens who targeted political machines and their bosses. By taking down these corrupt representatives in office, a further means of direct democracy would be established.
They also sought regulation of monopolies through methods such as trustbusting and corporations through antitrust laws, which were seen as a way to promote equal competition for the advantage of legitimate competitors. They also advocated for new government roles and regulations, and new agencies to carry out those roles, such as the FDA.
© Mauldin Economics
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