Wealth inequality in China, US reveals a failure to learn lessons from fall of the Iron Curtain

While China and America can hardly be said to have similar political systems, both have embraced the same form of unhinged capitalism
As the Chinese middle class suffers the consequences, Beijing is seeking to provide ‘common prosperity’ as a corrective

Alexander Görlach

Published: 6:45am, 3 Sep, 2022

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The death of Mikhail Gorbachev, the last leader of the Soviet Union, conjures up different memories around the world. To a person from Germany, the reunification of the country is inextricably linked to his name. In the aftermath of this historic event, scholars and writers tried to make sense of the world that was to come.

Two of the most notable publications of the post-Cold-War era are Francis Fukuyama’s End of History and Samuel Huntington’s Clash of Civilisations. The former saw the dawn of a democratic age, the latter, a multipolar world rising from the ashes of the crumbled Berlin Wall.

Even though Huntington granted the Sinic civilisation, as he called China, a place in this new era, he and most others at the time failed to see what the People’s Republic would be able to bring to the table of the 21st-century world order.

In the 1980s, Wang Huning, professor of international politics at Fudan University, visited the United States with the aim of looking into what made the country so successful. But, over the course of his tour, à la French political theorist Alexis de Tocqueville, Wang also observed more and more shortcomings of the land that many referred to as the last remaining superpower on the planet.

Wang compiled his conclusions from his journey in the 1991 book America Against America, an opus that inevitably recalls Democracy in America, which de Tocqueville wrote after his visit to the US in the 19th century. If Wang’s book had been read in the West, especially in the US itself, it might have helped to prevent the economic disaster triggered by the financial crisis of 2008.

However, at the core of his analysis, Wang is not correct (just as Fukuyama and Huntington are not). To him, social inequality, homelessness and a feeling of disenfranchisement among US citizens are products of Western liberalism and democracy.

What he perceived to be the loss of a sense of community and belonging vis-à-vis the constitutional enshrinement of individualism in America, was therefore to be prevented from taking root in China at all costs.

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China had just navigated its own moment of liberal awakening, with the student protests in Beijing in 1989, the same year my teenage self saw the once-perilous border that was the Berlin Wall climbed by Germans who shouted “Gorbi, Gorbi” (they meant Gorbachev).

After his return to China, Wang left academia and became an adviser to the Chinese leadership: Jiang Zemin, Hu Jintao and Xi Jinping. All three leaders have embraced Wang’s assessment of liberalism and democracy.

Yet, today, China and the US alike have high levels of inequality and unfair wealth distribution. The numbers for the two countries hardly differ. At the same time, no one would disagree that their respective political systems are very different.

China is capitalist and the US socialist? You must be joking

The reason for this paradox is that, although China and America do not have the same political system, both have embraced the same form of unhinged capitalism which can best be described as a bonanza, in which everything is on the market and can be traded and dealt with through money.

The less regulation the better! This ideology resonates in Deng Xiaoping’s “let some people get rich first”, as well as the Republicans’ “trickle down” economics, a mantra they repeat to this day as if it were the sacred “Om”.

The current property crisis in China is partly a result of such a bonanza, as an unregulated industry has its Madoff moment. As Americans know all too well, in 2009, former Nasdaq chairman Bernie Madoff was sentenced to 150 years in prison for paying his old investors back with the money new investors gave him. As the financial crisis unfolded, thousands of homeowners ended up on the streets on the watch of the Obama administration.

In China, real estate companies have been similarly irresponsible with the hard-earned money of the new middle class. But it is said that the government will bail out real estate projects so unfinished homes can be completed and delivered.

Moreover, it seems that Xi’s “common prosperity” campaign is aimed at remedying the failures of the past. He also upholds “socialism with Chinese characteristics”.

In western Europe, we do have a kind of “socialism”, at least in the eyes of American Republicans, who would decry a system with free education and affordable healthcare for all as communism. Actually, it is called a “social market economy”, and it has been a success for almost 80 years now.

But that’s not the whole story of Western European “socialism”: restricting business is something different from restricting people, their ambition, their thirst for innovation, and their ultimate sense of freedom.

This needs to be said because assessments of the reasons for the collapse of the Soviet Union often get it wrong. The USSR crumbled because Moscow would not give freedom to the people behind the Iron Curtain. East Germans, for instance, asked for basic freedoms, such as Reisefreiheit, the ability to travel abroad, which was not granted to them.

What happens to a system that doesn’t recognise the basic needs of people can be summed up by one of Gorbachev’s phrases that every German knows: “Life punishes those who come too late”.

Dr Alexander Görlach is a senior fellow at the Carnegie Council for Ethics in International Affairs in New York