At this time of economic crisis throughout the world, there is a sense of an almost Alice in Wonderland perspective when viewed from the comfortable confines of Shanghai.  One the one hand, we have the world’s leading economy, the United States, the self proclaimed bastion of capitalism and the cause of our current economic malaise offering a stimulus package that appears to be socialist in orientation, shot gun in approach, and predicated upon the idea of either leaving future generations with an incredible debt or based upon paying off the debt via class warfare – defining the rich as anyone with earnings above $250,000 per year and socking it to them.

On the other hand, we have a communist society that has achieved the fastest growth rates of any country in recorded history, who has lifted, by most conservative estimates at least 300 mililon people from poverty to the middle class in the length of one generation.  And, similar to the United  States, the Chinese leadership has responded to the current economic problems with a stimulus  package but one whose orientation is far different from that of the United  States.  It is focused, specific, internally financed, and will lead China  to achieving a growth rate of between 7-8% for 2009.

China’s stimulus package includes massive spending for major infrastructure projects like their western counterparts, but it also includes tax reductions for specific industries based on a specific plan.  It will be internally financed and will not involve any foreign borrowing.  And, there is little, if any, of the pork barrel projects, which seem to exemplify the U.S. stimulus package. Though the U.S. may spend its way out of the recession, it will be left with a huge debt and not have improved its competitive position in infrastructure or key industries.  The Chinese plan also includes tax incentives for specific industries, something the U.S. refuses to consider.  

The  U.S. approach involves  the federal government both owning and micro managing entire industries as witnessed by its 80% ownership of AIG, the very real possibility of its owning several banks, the  micro managing of the auto industry including the forced resignation of General Motor’s CEO.  It seems to be the ultimate insurer of everything from automobile warranties to home mortgages as bundled in their derivative packages. The tentacles reaching out from the nation’s capital seem to be reaching into every crevice of the economy with increasing mandates as to what industries may or may not do, and yet providing no incentives for industry to move forward and become more competitive  in the world’s market.  It is almost as if there is an inescapable magnet drawing the United States back to its European roots and seeking to emulate the failed socialist programs of Europe.  

China, on the other hand, is taking a very studied view of pitfalls of western economies and adopting a very reasoned, practical response to the current crisis.  Instead of following a pork barrel approach to stimulus, one that seeks to purchase each Congressperson’s vote by including special earmarked projects for each Congressional district, the Chinese are focusing on specific industries, and specific infrastructure  projects.  Already the leader in utilizing wind power as an energy alternative, the Chinese  are stimulating development of nuclear power, sun power, and bio-diesel fuels.  Tax incentives are provided to both industries and to consumers.  An  example of the latter is to provide tax rebates to first time purchasers of automobiles that are high in fuel efficiency.  The major beneficiaries of this program will be the poorer regions in China’s interior, and it will prove to be a stimulus both to the auto industry and to economic development of interior regions of China.

If one were to place these packages side by side and not know the national origin of each, the conclusion would appear to be that China’s was more “capitalistic” in orientation, and the United States was more “socialist” in orientation.  Hence, have we finally fallen down the rabbit hole and entered the world of Alice in Wonderland.