China can copy many things from America. They can copy the business models, technology, and policies for a start. One thing it could never copy is the great combination of government and markets that form the heart of the American economic system.
America has managed to develop and maintain a great – if not ideal – mixture of government and free markets. Each institution in the country is deployed in the area of society it excels in. Free markets use resources to create private goods and services, and the government creates an equality of condition among people, as described in Alexis De Tocqueville.
The American government protects the civil liberties and economic freedoms of her people. They care for the “commons” sectors of the economy. Those places where free markets either underperform or outright fail. They provide public and semi-public goods, and ensure the public are protected against health, occupational, traffic, and environmental hazards.
No matter how people find themselves in America, they all enjoy the economic opportunities fostered by the free market. They enjoy the quality of life brought about by a fair, effective, and transparent government.
This has created something of a virtuous circle of innovation and prosperity in the country. As Acemoglou and Robinson concluded in Why Nations Fail, citizens need inclusive institutions that create virtuous circles of innovation, better wealth distribution, and economic expansion to truly prosper.
This great combination of free market and government institutions behind the circle of prosperity is something missing from the Chinese economic system.
China has proven unable to develop and maintain this healthy combination of free market and government. They deploy these institutions in the wrong place, in the areas of society they are doomed to fail. The Chinese government allocations economic resources to creating private goods and services. The Beijing and Prefecture governments serve as the ultimate landlords, entrepreneurs, managers, and regulators; managing just about every major bank. They are financing State Owned Enterprises (SOEs), Town Village Enterprises (TVEs), and construction products.
Alongside this, China has yet to develop a fair and transparent government that works to protect civil liberties and economic freedoms. They haven’t deployed such a government to protect the “commons”. Instead, China has developed a dangerous mixture of institutions that pit the open economic system of the country against a closed political system. It pits industries against nature and threatens to undo all the progress made since the 1978 reforms; undermining the economic opportunities and overall quality of life for Chinese citizens. China ranks among the top countries when it comes to car accidents, work-related injuries, and environmental pollution. It’s also near the bottom of the list of countries when it comes to economic freedom.
The bottom line is that the post-1978 economic regime of china has managed to give the country something it lacked; economic growth. Despite that, it has yet to create an ideal combination of institutions fostering and sustaining this growth; a system that would allow citizens to enjoy the quality of life offered by efficient and effective markets, and a fair, effective, and efficient government. Until China is able to create such a system, the rich and poor people of China alike will look to America to find it.