China: The Collapse of an Economic Model

The housing bubble's pop led to a lot of Americans fundamentally questioning capitalism as an economic system, from Michael Moore's most recent flick to a poll that found that many Americans prefer socialism.

But despite these misgivings, I don't think anyone has seriously thought that capitalism is on the way out in this country. Free enterprise, in one shape or another, is a tradition that has been with Americans since before the nation was founded.

What about a country that does not have those same traditions? Tyler Cowen asked that question in regards to China and the possible popping of an economic bubble there:

What will the consequences be for the United States if and when the Chinese economic miracle encounters a major stumble? A lot of Chinese business ventures will stop being profitable, and layoffs and unrest will most likely rise. The Chinese government may crack down further on dissent. The Chinese public may wonder whether its future lies with capitalism after all, and foreign investors in China will become more nervous.

There are very few examples of one regime switching from a socialist economy to a market economy as fast as China has done (usually these changes are accompanied by regime change. Take the Soviet Union, for example). The speed of that transition might make support for capitalism fragile. It's a question worth pondering: If capitalism momentarily stops delivering the goods for China, will history catch up to the Chinese people?

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