Fall, 2010

From the Editor

Capitalism In Small Doses

The line between political and economic freedom is a fuzzy one. Although theoretically it seems a country could allow for capitalism and remain ruled by a totalitarian government, it is not clear that it is a viable long-term possibility.

There are two reasons for this. The first is that there seems to be limits to how successful capitalists can be without freedom. When I visited Cuba a few years ago, they had special Internet rooms in the hotels, but one had to show one’s passport to get into the area. But without access to information, it seems that one’s ability to succeed in business is severely attenuated. This goes for travel as well. My business necessitates that I have unrestricted travel, and I have been to every continent, save Antarctica. Traveling with my family also has allowed for a special bonding with many associates in other countries as our families have also become friends. This travel freedom is not possible in many totalitarian countries.

There is also something in the possession of arbitrary political power that limits the ability to grow. After all, what arbitrary political power means is that the rules can be changed at any time, for any reason. That discourages long-term investment and encourages people to try to squirrel money out of the country.

The second reason that totalitarian governments cannot sustain capitalism on a long-term basis is that as a country becomes more successful under a capitalist economic program, its very success leads to the development of alternative power centers. After all, how does a totalitarian regime govern?  Yes, it controls the army and the police, but these are rough-edged tools. Most people are controlled because the government controls opportunity — the jobs, the housing, access to educational institutions, etc.

Yet capitalism gives people wealth... and freedom. They no longer are dependent on the government for a job. If the government won’t let them in the engineering school, they can come to America and pay to go to MIT or the California Institute of Technology. They don’t need the government to assign them a flat. In Cuba, every couple, upon getting married, was given a honeymoon by the State. With capitalism, people take care of their own honeymoons.

This means that a country such as China, which with a degree of free enterprise has seen such growth in the middle class and the development of an ultra-rich class, has also seen the growth of pockets of people less dependent on the government. This puts the balance between political and economic freedom in question.

This explains the over-the-top reaction of China’s government to the awarding of the Nobel Peace Prize to Liu Xiaobo, a Chinese intellectual who is serving a prison sentence for subversion. He has worked as an advocate for democracy and human rights and has signed the Charter 08, a manifesto signed by thousands of Chinese endorsing democratic values and aspirations. China, quite correctly, saw this award as questioning the legitimacy of the political regime, and it responded wildly. From the picayune — China canceled the tour of a musical because its star was Norwegian — to the substantial — China declared the Nobel ceremony an "anti-China farce" — the insecurity of the Chinese leadership was clear.

In response to China’s urgings, a group of countries announced they would not have any representative present when Liu Xiaobo would be awarded in absentia the Nobel peace prize in Oslo, Norway. That hall of shame consisted of Serbia, Morocco, Pakistan, Venezuela, Afghanistan, Colombia, Ukraine, Algeria, Cuba, Egypt, Iran, Iraq, Kazakhstan, Russia, Saudi Arabia, Sudan, Tunisia, Vietnam and the Philippines — although Serbia relented under European pressure.

Ellen Bork, writing in The Weekly Standard, pointed out that the decision to give Liu Xiaobo the Nobel Prize did two very positive things. First, it showed that China was not a monolithic country, and that many in China value freedom and democracy and were prepared to suffer for those beliefs. Second, it demonstrated that there is a very rough side to the regime, and that it is prepared to use its economic heft to get countries to do its bidding on political matters.

This all leads to a question regarding free trade. We know trade increases prosperity, but does trade encourage the forces of freedom in a non-free political regime? Or does trade, by allowing for some prosperity, strengthen the regime and its hold on society?

On this question, much depends.