By Peter Lee
Chinese heavy hitters did not make it to the World Economic Forum at Davos this year. Apparently, spending Lunar New Year at home was more important than huddling with the West's movers and shakers in the Alps.
Those Western guests in Switzerland were, well, shaking as they confronted a crisis of confidence - and they are reaching out to an unlikely savior: the absent Chinese.
Spooked by the intractable European debt crisis and a looming recession, and deprived of the reassuring spectacle of nouveaux riche Chinese clamoring for admission to their billionaires' club, the lords of Davos declared that capitalism itself was in crisis.
The forum's founder, Klaus Schwab, stated: "Capitalism, in its current form, no longer fits the world around us." 
David Rubinstein of Carlyle Investment concurred:
I think we have three to four years in the West to improve the economic model that we have, and if we don't do that soon I think we've lost the game ... If we don't do that soon, when we are here in three to four years ... the game will be over for the type of capitalism that many of us have lived through and thought was the best type of capitalism. Actually, capitalism is doing quite well as the organizing principal and driving force of the world's economy, and as a vehicle for keeping the rich and powerful rich and powerful. As far as I can tell, North Korea, Cuba and Somalia are the only nations genuinely inhospitable to millionaires with gigantic sacks of cash.
If the global retreat of capital-unfriendly national social welfare and regulatory policies - and the rise of the austerity-uber-alles solicitude toward the interests of bondholders in the middle of the global economic downturn - are any guide, capital is stronger, freer, and more powerful than ever.
For instance, Rubenstein's Carlyle Group - a "private equity" shop along the lines of would-be US president Mitt Romney's very-much-in-the-news Bain Capital - is doing pretty well, with net revenues of US$980 million in the first nine months of 2011 on equity of $2.2 billion. Past performance is no guarantee of future returns, but it would appear that Carlyle is looking at a 2011 return on equity of over 50%. 
Rubenstein took home $3.8 million in executive compensation, salary and bonus only in 2011, not including any revenues from his ownership share in Carlyle. His share of Carlyle's profits netted him an additional $134 million. 
What isn't doing OK is capitalism's political handmaiden, globalization: a tenet of free-market economic theory, almost an article of religious faith, meant to reassure the rest of us that the interests of nations and their citizens can be synonymous with the interests of globalized capital.
Capitalism, once released from its regulatory cage, has recently shown an unfortunate disloyalty toward the Western nations that originally fostered, nurtured and cherished it; instead, it has roamed off to seek higher returns in the likes of Brazil, Russia, India, China and South Africa - aka the BRICS nations - while returning primarily to feast on vulnerable European economies via the bond market.
Financial capital is free to travel the world in search of optimal returns; but human capital isn't. The theoretically correct solution requires an effective dissolution of national sovereignties so we can all turn into pure economic nomads, pursuing free market bliss across our global field of dreams.
In realty, local populations are, for the most part, stuck with the nation they are born in and display a somewhat rational desire to favor the economies of their home states rather than the cause of global economic efficiency. Dissolving national sovereignty for the sake of economic union is rather difficult even for Europe, as the recent uproar over German Chancellor Angela Merkel's proposal to put the Greek budget under adult - ie European Union supervision - indicates.
For the rest of the world, it is an even bigger stretch.
When Deng Xiaoping was told China would have to abide by liberalized emigration rules (like those the US demanded of the Soviet Union) in order to obtain Most Favored Nation status with the United States, he famously replied, "How many Chinese do you want?"
The bottleneck is on the US side; the answer to Deng's question in 2010, by the way, was 67,634 (the number of China's emigrants obtaining permanent US residence status). 
Certainly we're a long way from a situation in which tens of millions of Chinese vote with their feet and dollars and flood into the United States to express their disgust with the Chinese regime and put irresistible pressure on the Chinese government to liberalize its economic policies, free its savers from the fetters of underdeveloped markets for investment and consumer goods, and usher in a global democratic/free market nirvana.
And the world is a long way from achieving the seamless internationalization of capital, trade and labor that would make globalization a win-win instead of zero-sum game.
The reassuring assumption in the West was that, if the globalization game was still zero sum, then at least the advanced democracies, with their advantages in capital, currency, infrastructure and innovation (and immigration restrictions), would stay on the winning side. The trend, at least for now, is running in the opposite direction.
Thanks to colossal financial and fiscal mismanagement and political gridlock, Western economies are struggling with problems of their own devising. The fact that everyone is yearning for the Chinese, at the very least, to goose the world economy with another stimulus and possibly step up as financial backstop to the International Monetary Fund and debt-burdened European governments has been officially upgraded from interesting paradox to galling conundrum.
Some analysts are heroically wrestling with the cognitive dissonance of simultaneously groveling to the Chinese for a bail-out and lecturing them on the right way to run their economy. But it doesn't seem to be working very well.
At Foreign Policy, Ian Bremmer pointed out that this is probably not the year that China will heed the advice of the West's economic masterminds to dismantle state capitalism in favor of a lean-and-mean free market system. He wrote:
The Economist argues that "both for their own sake, and in the interests of world trade, the practitioners of state capitalism need to start unwinding their huge holdings in favored companies and handing them over to private investors. If these companies are as good as they boast they are, then they no longer need the crutch of state support. " It's no surprise that The Economist would argue against the use of this system. Pretty much everyone here at Davos who is not part of the Chinese, Russian or Gulf Arab delegations would agree. I know I do. But The Economist is telling China's leaders to immediately begin shedding the system that has made their economy the second largest in the world while helping them maintain their monopoly hold on political power - and to opt instead for the brand of capitalism blamed for the financial crisis, the global recession which followed, America's economic malaise, and the Eurozone's current crisis of confident [sic]. If China escapes the third day of international economic reckoning - the first being the hedge-fund instigated Asian collapse of 1997, the second being the Great Recession triggered by the derivatives implosion, the third, the looming sovereign debt default drama playing out in Europe - it becomes increasingly difficult to attribute Chinese success to cheating and dumb luck.
New York Times columnist and Nobel economics prize winner Paul Krugman may fulminate about the distortions that China's neo-mercantilist policies introduced into the world economic system, but the fact remains that - to paraphrase the apocryphal Lenin analogy - global capital, fixated on the unrivaled growth and profit potential of Asia, sold the rope to hang the West with to China again and again and again.
This situation seems to have completely flummoxed conservatives and lured them into some pretty ugly places. The Daily Telegraph's Jeremy Warner wrote from Davos: It's Now Up to China to Save Capitalism.
[Th]e [ongoing eurozone] crisis [is] now squarely blamed on failings in European governance rather than on finance and economics. This is not an economic crisis, said one Chinese policy maker, but a political and institutional one.Warner acknowledges that the world's economic future lies in Asia; however, he seems totally oblivious to the fact that the Asian economies are largely united in a) their commitment to state capitalism, b) their abhorrence of "radical deregulation and supply side reform" and c) sharing an understanding that unthinking fealty to "free-market disciplines" is what drove the world's economy off a cliff.
It's easy to see what he means. Failure to resolve the crisis is causing business to become frozen in time, not just in the troubled eurozone periphery, but increasingly in the core countries too. Everyone knows what has to be done - some form or debt mutualisation - but political leaders are afraid to confront the reality, for fear of the backlash from their electorates. …
One of the disappointments of Davos so far this year is that I've not yet heard a single policy maker, banker or business leader make the case for the sort of radical deregulation and supply side reform vitally necessary in Western economies to kick start investment and growth.
Instead, an air of "capitalist guilt" hangs over this high Swiss Alpine resort, like low hanging cloud on the mountain tops. Apology for the market failures of the past is the order of the day, and few dare challenge it. Western capitalism is cowed.
Of course it is right that markets are made more responsible, and of course better ways of sharing the spoils of economic growth more equally have to be found. But advanced economies are finished unless they relearn some of the free market disciplines from which they sprung.
That makes his peroration seem rather non sequitur:
Capitalism saved China, it is sometimes said; it's now up to China to save capitalism, for there is depressingly little sign of Western nations standing up for it.If it is possible to extract some surviving sense from the intellectual rubble, Warner's point appears to be that China's one-party dictatorship will show the world how to run its business properly, without the pointless democratic pettifogging and disregard for the delicate sensibilities of capitalism now crippling Europe.
The root of the world's problems, according to Warner, isn't trickle-down economics; it's trickle-up democracy. In other words, the 1% had better forget about democracy and look toward an authoritarian regime, China, where the 1% is free to run the country as it sees fit.
Western drift, dismay, and newfound fascination with the Chinese model are music to Beijing's ears. People's Daily ran a commentary from Economic Daily, which made the approving observation:
The [Davos] organizers chose "The Great Transformation: Shaping New Models" as the theme of this year's annual meeting in order to explore new models for global economic development.Therefore, it is not hard to understand that the annual meeting of the forum regarded China's economy as the main content while discussing the "transformation" and "rebuilding a new mode". People all want to find "good medicines" from China's economy to solve current global economic issues. 
In recent years, the whole world has witnessed China's high-speed economic growth. China's successful methods of coping with the international financial crisis have also offered valuable experience for the global economic development to refer to.
For years, Western governments have deluded and consoled themselves with the idea that China's mixed capitalist/command economy was doomed to collapse. Maybe it is. But vindication may come too late for the Western democracies that uncritically hitched their wagons to global capital's cold and distant star.
1. See here.
4. Rubenstein's doing OK. Capitalism is doing OK.
Peter Lee writes on East and South Asian affairs and their intersection with US foreign policy.