The Best We Have

My recent trip to China and Singapore had me reflecting on discussions I’ve had on the merits of Western capitalist system. The discussion tends to end with someone (not me) saying: “it isn’t perfect but it is still the best we have.” By “we” they mean the world. If I respond that I’m not sure it is still the best we have, especially if you look at China and what its economic model has achieved, they would defensively respond: “it is a communist state and there is no freedom.” And when I correct them that China hasn’t been a communist state for decades, it goes on deaf ears. As an ordinary person who has spent a considerable amount of time living in both the West and China, I didn’t feel more free in one or the other. I never felt unfree in China.  It is one thing to hold outdated views about a far away nation, it is another to hold the same about your own society. So I’m baffled that despite ample evidence that many in the West are adamant that our economic system is “still the best we have”. 

It dawned on me that the people who usually insist that capitalism is the best we have are usually from the top echelons of society. In other words the people who have benefited the most from the system. Let’s look at the U.S., the epicenter of capitalism. The top 1% saw their wealth increase from 22.8% in 1989 to 30.5% in 2024, and the top 20% ‘s wealth (excluding the top 1%) increased from 43.9% in 1989 to 45.2% in 2022. While the bottom 50% saw its wealth shrink from 3.5% in 1989 to 2.8% in 2024. This is not surprising if you look at the wages for the middle and lower quintiles.  According to a 2018 study by the Pew Research Center, real average wage (after accounting for inflation) for the middle and lower quintiles has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers. A more recent study showed that, over the long run, from 1979 to 2023, wages for the top 1% skyrocketed by 181.7% and wages for the bottom 90% grew just 43.7%. Notwithstanding 73% of US workers are estimated to be struggling and unable to afford anything beyond their basic needs. In 2024, 41 million people in the US received food stamps with working families accounting for 38% of the recipients. Similar wealth distribution patterns can be observed in Europe. For example, in Germany, the  top 1% owns 30.4% of its wealth.

You could argue that I’m practicing recent-ism as I’m just going back three decades. What about looking at a longer period, say a  hundred or two hundred years ago? After all, Western  (I say this because it was created in the West) capitalism has been around for hundreds of years. As I have mentioned a couple of times before, I’m an avid student of history, so fine, let’s do it. Better still let Thomas Picketty, a renowned economist do it for us. In his best-selling book Capital In The Twenty First Century he documents wealth distribution in Europe and the US over 200 years starting in 1810, ending in 2010. By 1810 capitalism as an economic system was already established in Europe and the US. As per the chart below, you will see that the top percentile of the population has always retained the lion’s share of wealth from capitalism. There was a short period between the two world wars of the 20th century and after, till the 1970s where there was a dramatic reduction in the top percentile’s share. But they have started to recover the lost share since 1980.  

Basic Economics

One could also argue that wealth distribution isn’t the only indicator or whether an economic system works or not. Absolutely! However, if I recall correctly from studying economics, it is a key measurement as it shows how well economic policies are working for its population. Nevertheless, I thought it was a good time to brush up again on my knowledge of economics. 

I turned to Economics: The User’s Guide by Ha-Joon Chang. Since the two previous books (23 Things They Don’t Tell You About Capitalism and Edible Economics) I had read by the author were both refreshing and excellent, I hoped this one would be much more interesting and accessible than the economics textbooks I read at college and the vast majority of books I’ve read since on the topic. I wasn’t disappointed. And I appreciated that he addressed some of my peeves about the study of economics. Ha-Joon Chang wrote that he dislikes how economists over the past decades have successfully led us to believe that it is a science like physics and chemistry and thus there is only one conclusive approach to doing economics—neoclassical school’s way. This school of thought advocates that economics is a study of rational choice, made on the basis of deliberate, systematic calculation of the maximum extent to which the ends can be met by using the inevitably scarce means. Not only that, economists have also inflated the job of economics to explain life, the universe and everything else. As far as he is concerned “the subject matter of economics should be the economy – which involves money, work, technology, international trade, taxes and other things that have to do with the ways in which we produce goods and services, distribute the incomes generated in the process and consume the things thus produced.” (Chang, Ha-Joon. Economics: The User’s Guide (p. 27)). Amen!

Primarily, I also came to this book with the expectation that it might help me figure out whether Western capitalism is indeed the best we have. It did. The crux of the argument that I’ve heard over and over is that capitalism’s superiority lies in its free trade and free market principles and practices. I’ve long believed this to be a load of hogwash. I remembered when I was first taught this concept in the UK when I was studying for my A levels Economics, I just couldn’t get my head around what I was being taught. For a start, being a child of Nigeria, I was cognizant that Britain’s history of capitalism is very much rooted in the pillage of both natural and human resources from Nigeria and its other colonies. Secondly, I also knew how the IMF and World Bank, working at the behest of Western capitalist societies, forced Third World Countries (as they used to be called) to implement economic policies such as  structural adjustment program (SAP) as conditions to granting them loans and it had detrimental effects. SAP subverted the few economic developments that had been achieved since independence from the British. SAP required Third World countries’ governments to cut spending in areas such as education, health and infrastructure while opening up their countries to foreign investment, imports and devaluation of their currencies. These were policies that were more suitable for countries that were already developed and that had robust economic and political institutions which Nigeria didn’t have. Needless to say I barely passed that class. And that economics class was part of my motivation for studying history at university to help me make sense of the world.

Free Trade Not

Ha-Joon Chang chronicles the history of capitalism and dispels the notion that it is rooted in free trade and that its principles and practices are based on the timeless law of science. As I was making my way through it I kept thinking about how powerful the free trade/market narrative around capitalism has been in spite of so much well documented evidence to the contrary. No need to get into evidence around slavery and colonies again. However, there was nothing free about kids forced to work in factories in Britain during the industrial revolution period. Nor were the Chinese free to reject Britain’s request to allow imports of its manufactured products into China. The British forced their hands by flooding the country with opium, then started a war until a “free” trade treaty, the Nanjing treaty was signed in 1842. Some of the biggest proponents of free market, investment banks, in 2008, had no qualms abandoning their principle to plead for government intervention in the form of bail out money.  They received billions of dollars from governments around the world after their excessive risky trading in financial instruments such as Mortgage-backed Securities (MBS) and Collateral Debt Obligations (CDO) and lack of regulatory oversight caused the biggest financial crisis since the Great Depression of 1929.

Going back to the short period in the practice of capitalism, 1950 to 1973 when the share of wealth of the top percentile reduced sharply, this period according to Chang was the ‘golden age of capitalism’.  Because Western Europe’s per capita income grew at an astonishing rate of 4.1% per year, the US grew more slowly, but at an unprecedented rate of 2.5%. West Germany grew at 5.0%, while Japan grew even faster at 8.1% (Chang, Ha-Joon. Economics: The User’s Guide (p. 79)). And unemployment was virtually eliminated in these countries. This growth came about not because the practice of capitalism was at its optimum best but as a result of Western government taking the best aspect of socialism and marrying it with that of capitalism. After the Great Depression had shown the limits of laissez-faire capitalism, and the need to rebuild economies after the end of WWII, Western governments (including Japan) adopted a greater role in managing the economy. Many European governments took private enterprises into public ownership or set up new public enterprises, or state-owned enterprises (SOEs), in key industries, such as steel, railways, banking and energy (coal, nuclear and electricity). And some of these governments (e.g. France and Japan) coordinated their industrial policies across sectors through a 5 year plan, known as indicative planning, to distinguish it from the ‘directive’ Soviet central planning (Chang, Ha-Joon. Economics: The User’s Guide (p. 85)). The US government greatly influenced the economy by providing massive research funding to advance areas such as computers, pharmaceuticals and aircraft. And it implemented strict regulations for the banking sector, as did European governments. Thus, another noticeable feature of this period is that there was a very high degree of financial stability. During the Golden Age, virtually no country was in a banking crisis. In contrast, since 1975, anything between 5 and 35 per cent of countries in any given year have been in a banking crisis, except for a few years in the mid-2000s (Chang, Ha-Joon. Economics: The User’s Guide (p.80)).

Some may have been surprised that I mentioned my recent trip to Singapore along with that to China as inspiration for this piece. Why would I put these two very different countries together? Isn’t Singapore the poster child of a free market economy? When I was in Singapore, I went to Maxwell street food market and I had a bowl of black chicken and ginseng soup. It was exquisite. I was amazed that something of that quality could cost only about 8.5 Singaporean dollars. When I expressed my surprise to a local, I was told that the hawker street markets are subsidized by the government to keep them affordable and protect the culture of street food. I also learnt that many things are also subsidized by the government, principally housing, both rental and ownership. This is possible because the government owns 90% of the land that is then rented/leased to residents. Over 80% of the population live in public housing flats, yet at the same time can own a lease for the period of 99 years on these flats. The Singaporean government is also a big player in the wider economy through its SEOs such as Temasek. In 2020 Singaporean SOEs contributed 36.5% to its GDP, compared to the international average of 10% (Chang, Ha-Joon. Economics: The User’s Guide (p.49)). China’s SOEs contributed 25% of its GDP in 2020. Similar to the Singaporean government, the Chinese government owns all the land in China which is then leased out to citizens and enterprises. Even though Singapore is considered a parliamentary democratic republic with a multiparty system, it is essentially a one party state, People’s Action Party (PAP), just like China. The PAP has governed Singapore since 1965 and has 89% of parliamentary seats.

Am I saying that the Singaporean and Chinese economic systems are the best? No I’m not. But I believe there is a lot to learn from them. Just like Deng Xiaoping and his team learnt from capitalist societies and applied market economy principles while maintaining a centralized government that promotes economic development through public ownership and state owned enterprises. It is well overdue to admit and accept that capitalism, in its current form, isn’t the best we have. Without this no reform will come. Of course this requires visionary, realistic and humble leadership. Alas, this admission and acceptance is very hard to achieve in the West, as Bruce Lee wrote: “The Western approach to reality is mostly through theory, and theory begins by denying reality — to talk about reality, to go around reality, to catch anything that attracts our sense — intellect and abstract it away from reality itself.”(Lee, Bruce. Striking Thoughts: Bruce Lee’s Wisdom for Daily Living (pp. 15-16). No wonder the neoclassical school of economics with its love for theory and fantasy (that the market is a rational entity that requires minimum government intervention) over how the economy actually works in the real world has had a predominant hold on Western government policies for decades.