2024-09-22 16:34:27
The political upheavals of recent years have to do with a generalized discomfort and questioning of the capitalist system and globalization, prompting rich and poor countries to look for new models. However, there are cases that stand against the current.
Defenders of the status quo, as Foreign Affairs reports in its analysis, often cite the example of the US, whose economy is running faster than those of Europe and Japan. However, American citizens are just as disillusioned and pessimistic as the rest of the West. Only 1/3 of Americans now believe they will be richer than their parents.
The great disappointment of the Americans
The percentage of those who trust the government is steadily declining, even as the state extends a generous safety net. 70% of Americans agree with the view that the system “needs major changes or should be completely torn down.” And young people are the most outraged of all. Under the age of 30, the majority do not have a positive opinion of capitalism.
In countries with emerging economies, such strong skepticism about capitalism and decentralized solutions in the “land of opportunity and freedom” and the demand for greater intervention of the central state is shocking. Many of these countries, from India to Poland, have experienced painful periods when other systems, such as communism, prevailed. They were surprised when US President Donald Trump declared revolution against free trade and globalization and when his successor, Joe Biden, continued on this path, making it a priority to create “national champions” in the economy.
These countries can no longer draw inspiration, as Foreign Affairs comments, not even from China. The “economic miracle” that began when the Communist Party in the 1970s began to reduce control over the private sector and open up the economy is no more. Beijing, in a world of fierce competition, walls and trade wars, is also opting for more control and intervention.
However there are some areas where capitalism still “works” without grumbling and fury. Among them are Taiwan, Vietnam and Switzerland.
The… infamous Switzerland
Switzerland is certainly one of the richest countries in the world. It offers a welfare state to its citizens, maintaining a prudent budget, low taxes and financial stability. It has a higher per capita income than the Nordic economies, but similar levels of income inequality. The wealth of an average family in Switzerland is $685,000 – double the average in Scandinavia. Its public spending amounts to 35% of GDP compared to 55% in Sweden. It maintains relatively open borders, with 40% of its population having been born abroad.
It is almost never mentioned as a model economy (as is the case with the Scandinavian economies). “People tend to ignore the Swiss model, perhaps because of the country’s bad reputation as a tax haven where illegal assets are hidden behind strict bank secrecy laws. In 2015, Switzerland, under pressure from foreign governments, agreed to open its banks to more scrutiny, but the economy did not lose steam,” the FA comments.
The island of start ups
After World War II, Japan, South Korea, and Taiwan became known as the “Asian wonders” as they invested heavily in research and innovation and quickly moved from the club of the poor to that of the rich economies.
Capable governments and export-oriented industries have guided these miracles. South Korean Samsung and Hyundai are typical examples. Today, Taiwan is the most interesting of wonders. Choosing to focus on developing smaller companies that make parts for foreign companies, rather than multinationals that sell products under their own global brands, Taiwan has in recent years overtaken South Korea and the United States as the world leader in advanced computer chips.
Until the 1970s, Taiwan was primarily an exporter of textiles and clothing. It then began to modernize its economy by copying Western technology. In 1980, the Taiwanese government, taking cues from Silicon Valley, began establishing “science parks,” each with its own campus, across the territory to ensure regional, balanced development. The parks became hotbeds for startup companies, which drew talent from these universities and used government-subsidized programs to attract skilled expatriates back home.
To build the chip industry, Taiwan recruited a veteran from MIT and Texas Instruments named Morris Chang. TSMC, the company that “moves the world” was born.
Taiwan does not step in to save financial markets every time they falter, nor does it bail out big banks and companies. While other governments face each new economic crisis with increasingly generous packages, Taiwan has shown restraint—even during the COVID-19 pandemic. In 2020, the combined fiscal and monetary stimulus amounted to less than 7% of GDP, one-fifth of the average of the stimulus packages passed in the United States, Europe, the United Kingdom and Japan.
Although Taiwan’s tax rates are typical of a developed economy, its spending habits are different: limited on social programs and health care, very high on education and research. The result is excellent productivity. Output per worker has grown faster in Taiwan than in the G-4 countries every year for four decades. In the last four years, it has grown eight times faster.
The silent miracle
A miracle that few people talk about is that of Vietnam. It is certainly not a democracy, nor a Western-style capitalist system. It looks a lot like China during the miracle phase 20 years ago. With a population less than one-tenth the size of China’s, Vietnam will never have the same global impact, but it also shows that capitalism can work even under authoritarian, one-party, communist rule.
Torn by its civil war, Vietnam in the late 1980s lived on handouts from the Soviet Union. Growth was stagnant. Inflation reached 700%. Hanoi responded by opening the state economy to private enterprise, abolishing collective farms and leasing land to private individuals, who for the first time were allowed to sell their products at a profit, domestically or abroad. Production increased rapidly. While for years a rice importer struggling with hunger, Vietnam has become a rice exporter. Even now, as many countries raise trade barriers, Vietnam remains a champion of free markets.