Charlie Munger on China’s remarkable success under a peculiar model; Adam Smithian capitalism but no free speech
Charlie Munger did an online interview for the Caltech Distinguished Alumnus Award in December 2020. He talked about China’s remarkable rise. That is, how the Chinese lifted of hundreds of millions of people from poverty in just a few decades:
Munger: The other thing that’s really remarkable. You take the last 30 years of China. They have had real economic growth at a rate for 30 years that no big country has ever had before in the history of the world. And who did that? A bunch of Chinese communists. Now, that is really remarkable. So if you’re studying finance, you’ve got a lot of strange things to account for.
The Chinese story is the damnedest thing that ever happened to a big country in terms of economics. No other big country ever got ahead that fast for that long.
Who would have guessed that a bunch of communist Chinese run by one party would have the best economic record the world has ever seen? Of course it’s extreme. And I think it proves that [different models can succeed].
We Americans would like to think that our free expression and allowing all kinds of opinion, and all kinds of criticism of the government is totally an essential part of the economy. And what the Chinese have proved is you can have a screamingly successful economy with a fairly controlling government.
All the government has to do is create a lot of [Adam] Smithian capitalism. If you do that, having a sort of a controlling one-party government doesn’t matter. That’s not a fashionable thing to say, but I think it’s true.
He also mentioned China on his closing remarks:
Moderator: What are you most curious about in the next 30 to 40 years?
Munger: Well, having been an investor for so long, I’m of course interested in these weird present conditions and these weird economic conditions where they’re printing money like crazy and so forth. And of course that’s very interesting.
And I’m interested in the fact that the world has come so far in having these undeveloped countries get ahead so fast like China. Now I compare it with India, which has a way worse economic record, even though they got more of our political institutions. You know, they got more free speech in India, and a way worse economic achievement. I think the economic development of the modern world is very interesting. It’s a very interesting subject.
During the 2021 Daily Journal Annual Meeting, Munger was asked again about China. Here are his remarks:
Question: My question concerns China. In 1860, GDP per capita in China was 600. In 1978, the year Deng Xiaoping took over, it was 300. Today, it hovers around 9500. Never before in the history of mankind have we seen such a rapid eradication of poverty, pulling approximately 800 million people out of destitution. You are on record as a zealous fan of the Chinese work ethic and Confucian value system. As we can see from the deteriorating U.S. relationship with China, the Western world does not understand China. What can we do to increase knowledge, understanding, and appreciation of the Chinese civilization?
Munger: Well, it’s natural for people to think their own civilization and their own nation are better than everybody else. But everybody can’t be better than everybody else.
You’re right. China’s economic record among the big nations is the best that ever existed in the history of the world. And that’s very interesting.
A lot of people assume that since England led the Industrial Revolution and had free speech early that free speech is required to have a booming economy as prescribed by Adam Smith. But the Chinese have proved that you don’t need free speech to have a wonderful economy. They just copied Adam Smith and left out the free speech and it worked fine for them.
As a matter of fact, it’s not clear to me that China would have done better if they’d copied every aspect of English civilization. I think they would have come out worse because their position was so dire and the poverty was so extreme, they needed very extreme methods to get out of the fix they were in. So I think what China has done was probably right for China and that we shouldn’t be so pompous as to be telling the Chinese they ought to behave like us because we like ourselves and our system. It’s entirely possible that our system is right for us and their system is right for them.
Question: Mr. Munger is a champion of Chinese stocks. How concerned is he about Chinese government interference as seen recently with Ant Financial, Alibaba, and Mr. Jack Ma. What, for example, is to stop the Chinese government from simply deciding one day to nationalize BYD?
Munger: Well, I consider that very unlikely. And, I think Jack Ma was very arrogant to be telling the Chinese government how dumb they were, how stupid their policies were, and so forth. Considering their system, that is not what he should have been doing.
I think the Chinese have behaved very shrewdly in managing their economy and they’ve gotten better results than we have in managing our economy. I think that that will probably continue.
Sure, we all love the kind of civilization we have. I’m not saying I wanted to live in China. I prefer the United States. But I do admire what the Chinese have done. How can you not? Nobody else has ever taken a big country out of poverty so fast and so on.
What I see in China now just staggers me. There are factories in China that are just absolutely full of robots and are working beautifully.
They’re no longer using peasant girls to beat the brains out of our little shoe companies in America. They are joining the modern world very rapidly and they’re getting very skillful at operating.