Capitalism is defined variously by different scholars. Many view it as an economic arrangement in which the means of production are exclusively held by private investors. In addition, the businesses are operated with the sole purpose of making profits. The main characteristics of capitalism include competition and capital accumulation (Bowles 35).
The prices of goods and services are set by the market forces, which include demand and supply. It is important to note that there are different models of capitalism. The level of competition, regulation from external agents, as well as the role of such interventions differs across these models (Bowles 35). In addition, the capacity of public ownership varies.
In the current paper, the author reviews some of the important factors needed for a capitalist economy to produce wealth. The discussion will be made in relation to DeSoto’s arguments. In his writings, DeSoto holds that capitalist economies need ‘something else’ to produce wealth.
The author of this paper will analyze this ‘something else’ and provide examples. In part 2 of the paper, the author will look at DeSoto’s ‘something else’ in the context of Communist China. In part 3, the possibility of dictator’s in Communist China succeeding in using a capitalist system to produce wealth will be reviewed. The review will be made against the background of Friedman’s thesis on prosperity.
DeSoto and the Capitalist Economy
In the business world, money is commonly referred to as capital. However, in real sense, money and capital are two different things. The latter refers to the means of production available in the economy (Bowles 40). In addition, all capital exists in a precise form. On its part, money is non-specific.
It can be used to buy anything, including capital goods. In addition, money circulates but does not produce (DeSoto 43). A number of economies around the world have adopted capitalism. However, this existence does not mean that these countries always generate wealth. According to DeSoto, there is ‘something else’ needed for a capitalist economy to produce prosperity (46).
DeSoto highlights some of the factors needed for capitalism to produce wealth in the economy (46). One of the key elements entails a formal property system. The system is the ‘something else’ required in capitalist economies. The structure powers the economic arrangement. It is what brings about capital (DeSoto 47).
According to DeSoto, private property system entails possession and transaction in relation to assets (48). It is an indication of what people regard to be of economic value. Proper understanding of an asset’s worth leads to competence and control in the market economy. The control is achieved through the generation of surplus products and increased productivity. DeSoto’s argument points to outcomes that allow people to create capital. The objective is achieved through an extralegal segment.
DeSoto uses a number of examples to support his assertion that private property system is needed to generate wealth. One instance entails the incorporation of information into one scheme. Most developing countries have multiple legal systems. The duplicity limits what owners can achieve with their property (DeSoto 53). Urbanized countries have come up with one formal representational system (DeSoto 53). Stakeholders have brought together different facts to create a single system. The step results in a scenario where information is put in one database.
According to DeSoto, developing countries can formulate a number of policies to ensure that private property system generates wealth (43). The approaches include promoting accountability, protecting transactions, and securing the economic potential of assets.
Private property and accumulation of wealth should be supported (Shambaugh 29). People should be encouraged to establish functional networks and account for their actions (DeSoto 69). Putting data into one structure is beneficial. It has helped Western nations accumulate wealth over the past two centuries.
Property Law in Communist China
The economic arrangement in China has captured the attention of many economists. DeSoto’s theories raise questions regarding the extent to which Communist China reflects the idea of conventional private property system (Chang 63). Chinese property law is still developing. The country’s legal system differs with that used in the western nations (Chang 63). The constitutions of the western countries are meant to control the government.
On the other hand, a communist constitution acts as tool for party rule. It is a means through which the government interferes with the market forces (DeSoto 45). President Zemin has shown his public approval of private ownership of means of production. In addition, economic reforms are taking place in China in relation to private property system (DeSoto 34).
For example, in Shanghai, about 90 percent of houses are now privately owned (Shambaugh 65). The development has resulted in the establishment of profitable mortgage arrangements. What this means is that China, like the western nations, can use the capitalist’s notion of private property to generate wealth (Shambaugh 66).
McGregor provides a number of examples to illustrate the status of private property in Communist China (The Party: The Secret World 54). One example entails reforms in the Communist Party. The private sector in China grows at an annual rate of 20 percent (McGregor The Party: 1.3 Billion People 54).
The growth started with the introduction of reforms in 1978. More than 30 million private businesses have been set up (McGregor The Party: The Secret World 56). The development has resulted in a considerable increase in tax revenue for the government. It has also created employment. The scenario above is an example of how private ownership of property can lead to creation of more wealth (Friedman and Friedman 45).
Another example provided by McGregor states that the Communist Party has reduced its levels of interference in people’s lives. Most of the things that needed the approval of the party are now subject to individual choice (McGregor The Party: 1.3 Billion People 71). In the past, the party used to control almost every aspect of the Chinese society (Shambaugh 23). However, since 1989, things have changed (The Party: 1.3 Billion People 71). People can now own property and accumulate wealth more easily and without fear from the government.
Capitalist System in Communist China
The Chinese dictators have made efforts to introduce a different version of capitalism in the country (Shambaugh 34). They have tried to use the system to create wealth. According to Friedman and Friedman, economic liberty automatically transforms to freedom for the individual (43).
However, the communist leaders are trying to deny this fact. They intend to create freedom while curtailing individual freedoms at the same time (Friedman and Friedman 45). The scenario raises the question of whether or not the government will succeed in its efforts.
A critical review of the situation in Communist China reveals that the dictators may record some measure of success in their attempts to use capitalism to create wealth while denying people their individual freedoms (Shambaugh 39).
For example, formalization of private property ownership will help people break free from oppressive rule of the CPC. As such, they will be able to make autonomous decisions involving their enterprises with minimal interference from the government. However, the party will still retain control over some elements of the society (Bowles 84).
Friedman acknowledges that even with economic freedom, the government will continue to influence the rights and freedoms of the people. The enforcement of the property rights is the responsibility of the government (Friedman and Friedman 72). With minimal interference from the government, the introduction of the capitalist system will translate to the economic freedom of the Chinese people (Friedman and Friedman 34).
In my opinion, dictators in China may succeed in using a capitalist system to bring about prosperity in the country. However, the individual freedoms of the citizens will still be abused (Bowles 45). The reason is that the influence of the CPC is widespread (McGregor The Party: The Secret World 87).
Property rights can be manipulated to suit the interests of the dictators. Control over the court system also means that the dictators may curtail the individual freedoms of the people (Shambaugh 23). Their hold over the military and the police force will also enable them to enforce their oppressive rule (DeSoto 45).
Capitalism is characterized by a number of ideas. One of them includes formal ownership of property. Its significance is evident in China. People are now aware of the real value of their assets. One key policy shift has resulted in significant achievements among the Chinese. Ownership of private and public properties is now treated equally in China.
Bowles, Paul. Capitalism, Harlow, England: Pearson/Longman, 2007. Print.
Chang, Chen. Communism in Mainland China, Taipei: World Anti-Communist League, China Chapter, 1987. Print.
DeSoto, Hernando. The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, New York: Basic, 2000. Print.
Friedman, Milton, and Rose Friedman. Free to Choose: A Personal Statement, New York: Harcourt Brace Jovanovich, 1980. Print.
McGregor, Richard. The Party: 1.3 Billion People, 1 Secret Regime, London: Penguin, 2011. Print.
—. The Party: The Secret World of China’s Communist Rulers, New York: Harper, 2010. Print.
Shambaugh, David. Power Shift: China and Asia’s New Dynamics, Berkeley: University of California, 2006. Print.