CHARBONNEAU – Big governments in the West look to success in China

IN 1978, CHINA LOOKED to the West for industrial policy and implemented capitalism as a method of reform. Now the West is looking to China’s big government model of communism to boost productivity.

By “big government” I don’t mean intrusion into all aspects of the lives of citizens or the infringement of the rights of individual citizens.

Rather, I mean the subsidization of industry on a massive scale. The new brand of communism is not your father’s communism.

The old communism featured the Soviet Model in which heavy industry (steel, coal) was prioritized over the production of consumer goods. Strict industrial policy involved centrally planning and resource allocation.

The new communism features subsidization of private industry and competition in the capitalist style. This has resulted in a shift from heavy industry to marketing consumer goods for domestic and global markets.

It’s big government with a calculated control over key industries and strategic sectors.

China gave subsidies to nurture the development of a large manufacturing sector, with the country’s share of world output rising from 5 to 35 per cent in just a quarter-century. This translates to about $4 trillion in China’s overall economic output.

Western countries revelled in the flood of inexpensive Chinese goods. The flood transformed Western economies from manufacturing to finances and real estate.

And to no one’s surprise, it resulted in the exodus of manufacturing jobs to China and the rusting out of American industry. The resulting worker dissatisfaction lead to the rise of populist politicians like Donald Trump who promised to place tariffs on China’s goods and revive dying industrial towns.

Now the West, led by the U.S., is embracing the new communistic ideal of subsidies. The U.S. recognizes the success of China’s communist/capitalist model and is implementing what could be called a capitalist/communist model of its own.

President Joe Biden has spurred the growth of big government, as I defined it, with a new industrial policy. Like China, he is now providing huge subsidies to support industries so that they might better compete globally.

The subsidies include tax incentives and investments to promote clean energy and reduce greenhouse gas emissions,boosting semiconductor manufacturing, and projects aimed at de-carbonizing the industrial sector.

And it’s working. The policy has raised labour productivity and increased global competitiveness. The economy is booming in a way it never did under Trump as president.

Of course, subsidization of industry gets expensive: The U.S. is currently running a fiscal deficit nearly five times as big as Canada’s and its debt-to-GDP ratio is three times worse.

Subsidies are not sustainable, says political economist John Rapley:

“Although U.S. debt dynamics aren’t sustainable, to the extent the country’s industrial policy is creating a self-sustaining boom, the economy may be able to weather the eventual fiscal retrenchment.”

Canada’s labour productivity is dismal. If Canada fails to follow the big government leader, Canada could end up last of all of our G7 competitors.

Conservatives like to criticise the federal Liberals for “tax and spend” policies but that’s exactly what Canada needs to do.

Under a Conservative government, the alternative to big government may be even worse.

David Charbonneau is a retired TRU electronics instructor who hosts a blog at http://www.eyeviewkamloops.wordpress.com.