The political upheavals of recent years have been linked to widespread discomfort and questioning of the capitalist system and globalization, leading rich and poor countries to seek new models. However, there are cases that go against the grain.
Defenders of the status quo, as Foreign Affairs reports in its analysis, often cite the example of the United States, whose economy is growing faster than those of Europe and Japan. However, Americans are just as disillusioned and pessimistic as the rest of the West. Only a third 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 demolished.” And young people are the most outraged of all. Under the age of 30, most do not have a positive opinion of capitalism.
In countries with emerging economies, this strong skepticism towards capitalism and decentralized solutions in the “land of opportunity and freedom” and the demand for greater central government intervention is shocking. Many of these countries, from India to Poland, have lived through painful periods when other systems, such as communism, prevailed. They were surprised when US President Donald Trump declared a revolution against free trade and globalization and when his successor, Joe Biden, continued on this path, making the creation of “national champions” in the economy a priority.
These countries can no longer draw inspiration, as Foreign Affairs notes, 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 longer there. 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. These include Taiwan, Vietnam and Switzerland.
The… infamous Switzerland
Switzerland is certainly one of the richest countries in the world. It provides a welfare state for its citizens, while 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 Swiss household is $685,000 – twice the Scandinavian average. Its public spending amounts to 35% of GDP, compared with 55% in Sweden. It maintains relatively open borders, with 40% of its population born abroad.
It is rarely mentioned as a model economy (as is the case with Scandinavian economies). “People tend to overlook the Swiss model, perhaps because of the country’s bad reputation as a tax haven where illegal assets are hidden behind strict banking secrecy laws. In 2015, Switzerland, under pressure from foreign governments, agreed to open its banks to greater scrutiny, but the economy has not lost momentum,” comments the FA.
The island of startups
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 the club of the rich economies.
Capable governments and export-oriented industries have driven these miracles. South Korea’s Samsung and Hyundai are typical examples. Today, Taiwan is the most interesting of the wonders. By choosing to focus on developing small companies that make parts for foreign companies, rather than multinationals that sell products under their own global brands, Taiwan has in recent years surpassed 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 the 1980s, the Taiwanese government, following the lead of Silicon Valley, began establishing “science parks,” each with its own campus, throughout the territory to ensure balanced regional development. The parks became hotbeds for start-up companies, which drew talent from these universities and used government-subsidized programs to attract skilled expatriates to their country.
To build its chip industry, Taiwan recruited a veteran of 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 corporations. While other governments have met each new economic crisis with ever more generous packages, Taiwan has shown restraint – even during the COVID-19 pandemic. In 2020, combined fiscal and monetary stimulus amounted to less than 7% of GDP, a fifth of the average of stimulus packages approved in the United States, Europe, the United Kingdom, and Japan.
While Taiwan’s tax rates are typical of a developed economy, its spending patterns 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
One miracle that few people talk about is Vietnam. It is certainly not a democracy, nor is it a Western-style capitalist system. It looks a lot like China during its miracle phase 20 years ago. With a population less than a tenth of China’s, Vietnam will never have the same global impact, but it also shows that capitalism can work even under an authoritarian, one-party communist regime.
Torn apart by civil war, Vietnam in the late 1980s was living on handouts from the Soviet Union. Growth was stagnant. Inflation reached 700%. Hanoi responded by opening the state-owned economy to private enterprise, abolishing collective farms and leasing land to private individuals, who for the first time were allowed to sell their produce at a profit, either domestically or abroad. Production increased rapidly. For years it had been a rice importer struggling with famine, but Vietnam became a rice exporter. Even now, as many countries are raising trade barriers, Vietnam remains a champion of free markets.