The Chinese government has made an existential choice: rather than surviving by betting on the financial markets, it is going to produce stuff instead. It wants a nation full of engineers, not financial engineers; computer chips, rather than chocolate chips; innovation over financial experimentation. Beijing also wants an education system that actually educates, rather than creating a cottage industry of “progressive” credentialism that engenders a self-perpetuating upper class, rich both in terms of capital and diplomas but provides little in the way of genuine scholarship.
Needless to say, this is not the conventional reading of China’s recent attacks on fin-tech, internet monopolies and private education companies. Take Stephen Roach, former chief economist at Morgan Stanley, who recently decried Beijing’s actions “as a tipping point for the economy”. He goes on to lament the heavy-handed use of regulation “to strangle the business models and financing capacity of the economy’s most dynamic sector”.
As the proverbial expression goes, you can take the boy out of Morgan Stanley, but you can’t take Morgan Stanley out of the boy. Roach still retains a Wall Street-centric bias in a country — the United States — where the stock market remains the ultimate arbiter of the American experience. Indeed, if one were to assess America’s “entrepreneurial spirit” via stock market metrics, then that would suggest that US has been stunningly successful. As economist David Goldman has noted, “in 2010, the five biggest tech companies accounted for just 11% of the market capitalisation of the S&P 500”. Today, however, “ten companies in the S&P 500 hold two-fifths of all the cash balances of index members, and all but one is a tech giant… The top three cash holders in the S&P — Microsoft, Apple, and Google — hold a fifth of all the cash held by index companies”.
But as Goldman observes, these companies’ profits have increasingly been the product of oligopolistic rents, rather than product innovation: “Apple is so cash-rich that it has bought back $327 billion of its stock since 2012. That explains why its stock price has risen by 82% in the past six years even though its operating income has barely changed.”
Read More at https://unherd.com/2021/08/what-the-west-must-learn-from-china
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