Time to Learn Chinese

Dictatorships are bad. Capitalism is good. We learned all that back in 4th grade after reciting the pledge of allegiance to the flag in the back of the schoolroom. God bless America, and pass me a sparkler.

The world is not so simple anymore.

Guiding Principles

The truth is, a dictatorship, if run correctly, has the power to beat the pants off a capitalist democracy in every arena. However, in past history, dictators always (overgeneralization, I know) acted in their own immediate self-interest at the expense, and eventual destruction, of the country they run.

Capitalism and democracy solve that problem–a capitalist society acts in its own financial self-interest, while a democratic society acts in its own social self interest, which luckily both actually serve the greater good. However, there’s one serious caveat — a rare condition that can destabilize these systems and make them behave like a poorly run dictatorship. The problem, as you know if you’ve studied economics, is any artificial centralization of power. For example, The Monopoly.

Economic Destabilization

In a capitalist society, each individual entity acts in its own self-interest, attempting to strike some optimum balance where its own return on its investments is at a peak. As luck would have it, when each individual component is working at its peak performance, the economy as a whole is also at a peak. The market automagically adjusts to meet supply and demand changes, and competition drives the innovation required to find new ways of meeting demand while spending less. It’s as though, as Adam Smith put it, an “Invisible Hand” is guiding the market to its optimal performance.

This all assumes, however, that the individual entities always act in their own self-interest, and without interfering with the actions of others. Adding a monopoly to the mix changes all that. If one single player can directly manipulate supply or demand (like a monopoly can), he can force other entities to act in his self-interest, rather than their own. This creates a sub-optimal situation that may not always be obvious.

For example, our most recent American monopoly, Microsoft, has been using is position to control the market to a degree not generally within the bounds of a capitalist environment. For example, nearly all computers sold in this country come with Microsoft’s software pre-installed. You pay for it, of course. Usually, Windows accounts for $60 to $200 of your computer’s purchase price. And at current prices, that could account for a third of the computer’s cost. There are alternatives, of course. Linux, for example, can be had for as low a price as free, and its main hindrance to widespread adoption is its lack of popularity. In fact, nearly every piece of software you’ve ever used has a free alternative that closely rivals (or even exceeds) its commercial counterparts in quality.

Microsoft, however, using its monopolistic influence often takes the choice out of your hands. That copy of Windows running on your computer–how much did you pay for it? You don’t know? Free? No, it wasn’t free. But you didn’t see the price tag, either. Microsoft struck a deal with the maker of your computer (Dell, IBM, Sony, etc.) allowing them to sell your copy of Windows closer to the $60 range instead of the standard $200 price in exchange for an agreement which forces that manufacturer to sell a copy of Windows with every computer they sell–effectively taking that purchasing decision out of your hands. A single company has been allowed to directly manipulate both supply and demand on a few different fronts, resulting in a broken market. Adam Smith sighs resignedly in his grave.

Well, fool me once… and I’m not going to get fooled again: Such acts by monopolies are now illegal in this country. Microsoft went to trial for this very thing, and interestingly enough, the very companies they were influencing, the hardware manufacturers, actually came out in the company’s defense. As history later showed, this hold–the preinstalled software pricing deal–which allowed Microsoft to dictate what the manufacturer would sell, was also used to force these manufacturers to testify in court in Microsoft’s defense–falsely if necessary.

Social Destabilization

These events lead us to the other half of our discussion, the social effects. In a democracy, each citizen is a well-informed active participant in all matters of governance. He votes in his own self-interest, and the society as a whole progresses in what could be considered an ideal situation.

We don’t live in a democracy.

No one does. To use a computing term, democracy doesn’t “scale”. The more members you add, the less effective the system becomes. A system where half a billion citizens spend a good part of their day discussing legal issues and voting on bills would collapse under its own weight. The real truth behind issues presented would rarely be understood, the only decisions that actually get made would have to be pushed through by a “man on a white horse” who mobilizes the masses based on his own propaganda. Democracies of any real size don’t work–it’s just not an option.

We, along with our “democratic” neighbors, live in a Representative Republic. We elect representatives whom vote on our behalf. Your opinion on real-life issues only matters to the extent that it affects whom you vote for. Beyond that, your own views are quite irrelevant to the direction our society takes.

Real governing power is concentrated in the few elected officials who actually direct public policy. If an organization can convince enough elected officials that it’s in their best interest to act in the interest of the organization, then they’ve effectively wrested control of the government out of the people’s hands. If the issues in question are minor (or difficult-to-understand) enough as to not attract too much public attention, any policy decision can be effectively influenced by those with enough political clout. This is, of course, the “Iron Triangle” you heard about when studying government. Bureaucrats, politicians, and special interests run the country. You just think you do.

Companies like Microsoft can then effectively use the legal and legislative system to avoid any social repercussions to their tampering with the economic side of things. You’re the one who gets hurt, but you didn’t get to vote on that decision.

Enter China, Stage Left

This is where the dictatorship comes into play. China still wants to take over the world. Recent history has shown, however, that the most effective way to do so is through economic strategies, not through military conquest.

The societies in Eastern Civilization tend treat authority with a higher degree of importance than their Western counterparts, which leads to a more stable social situation. The success of an Eastern empire is measured in millennia–years are just milestones. It’s not uncommon for an Eastern company to have a 10-year, 50-year, or even 100-year plan on the books.

The current Chinese government is no different. World domination is what they’re after, and they’re willing to wait if that’s what it takes. The government is free to make whatever decisions are required to make that happen without having deal with the requests of special interests.

For example, China is one of the world’s leading consumers of Nuclear Energy research, promising the largest deployment of pebble bed reactors in the world in a time when building nuclear reactors is taboo among countries with an active environmentalist contingent. The fact is, China needs electricity. These reactors are cheap, absolutely safe, low-maintenance, and more environmentally friendly than their conventional counterparts.

The Global Market

One point that makes the current situation different than that of centuries past is an awareness of the global scale of our opportunities. China had found, for example, that it could artificially tie their own currency to the American dollar, thereby assuring that labor and materials in China were always the cheapest no matter what happened to exchange rates–thus guaranteeing the availability of an export market. Export markets are, in fact, the mainstay of Chinese technology production, where supply far outstrips internal demand. And Chinese companies are always looking for ways to better compete on cost; an area where China excels in comparison to other countries where workers’ unions are all too willing to trade a job’s viability for short-term benefits.

The Future of Technology

And that brings us back to our discussion on software pricing. China has the resources and the motivation to produce computers and computer parts at costs below the global average, and its capability is increasing as time goes by. The Chinese government has already publicly eschewed Microsoft and everything they stand for. China has even gone as far as to create its own Linux distribution: Red Flag Linux. This platform has already been adopted by all levels of Chinese operations, from government offices to insurance companies to news media. In China, Microsoft has much less clout.

It’s only a matter of time before Eastern companies start selling large quantities of very-low-cost computer systems to Western consumers. It’s all part of the game plan. The software is free; the hardware is cheap. Here in the West, a small handful of very powerful companies is manipulating the market to their own advantage. The expense we pay is overpriced goods, stifled innovation, and the loss of market dominance.

The situation won’t last forever, of course. The market will recover. The monopolies will be rendered ineffective, and supply will once again balance out with demand. The bad news is that the American economy will no longer have a commanding role in global commerce.

Sooner or later, we’ll all have to learn to speak Chinese.