Is Capitalism Broken? How Switzerland, Taiwan, and Vietnam Are Proving the Critics Wrong

Why Is the US Economy Struggling? Lessons We Must Learn from the Swiss and Taiwanese Models

Discover why US capitalism is faltering while Switzerland, Taiwan, and Vietnam thrive. Ruchir Sharma explains how decentralized economies are outpacing the American model. Want to understand the roadmap for a healthier economy? Read on to explore the specific policies that allowed these three nations to succeed where others are failing.

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Capitalism gets a bad rap these days, writes chairman of Rockefeller International Ruchir Sharma in this thought-provoking article. He acknowledges widespread discontent with some of capitalism’s consequences, but he points to Switzerland, Taiwan, and Vietnam as solid showcases for capitalism’s pluses. Sharma posits that the US economy, by contrast, is headed in the wrong direction, leaving many citizens disillusioned and less sanguine about the future. Sharma cogently argues that US capitalism is ready for a do-over.

Take-Aways

• Many countries express disaffection with capitalism.
• The Swiss, Taiwanese, and Vietnamese models of capitalism function properly.
• Capitalism’s trajectory in the United States bodes ill for the nation’s future.

Summary

Many countries express disaffection with capitalism.

Modern capitalist models have left many people disenchanted. While some defend the United States as this economic system’s exemplar, with its robust economy and roaring financial markets, Americans are wary of the future. Distrust in government is rife. Many under the age of 30 view socialism more favorably than they regard capitalism.

“Seventy percent of Americans now say that the system ‘needs major changes or to be torn down entirely,’ and the younger generations are the most frustrated.”

America is leaning toward more centralized power and state intervention, to the surprise of many other governments. At the same time, China has reverted, under Xi Jinping’s leadership, to its traditional, interventionist “command-and-control” model. High levels of indebtedness, an aging populace, and a meddlesome government hamper economic growth there.

The Swiss, Taiwanese, and Vietnamese models of capitalism function properly.

Switzerland, Taiwan, and Vietnam exemplify well-functioning capitalism. Low levels of government intervention and the prudent use of public money provide a healthy balance of aid to those most at risk with the preservation of economic liberty.

“Yet as these major countries seem to be retreating from capitalism, there are a few places across the income curve, including Switzerland, Taiwan, and Vietnam, where capitalism still works — and their examples are worth emulating.”

Switzerland owes its success to an efficient government that neither overspends nor overtaxes, yet offers comprehensive social insurance and welfare benefits. Public expenditure is about one-third of GDP. Quality secondary education carries low tuition, relative to that in other developed countries. A more open border incubates globally competitive industries. The government and the economy are decentralized. Exports are diversified across provinces. Two-thirds of all jobs are in small enterprises. Government employment is lean. Export revenues and the Swiss franc are robust. Once a haven for banking secrecy, Swiss finance has become more transparent as the economy prospers.

An entrepreneurial approach emphasizing partnership between the public and private sectors fuels the Taiwanese economic miracle. A focus on smaller businesses that produce components for overseas firms has made Taiwan the global leader in advanced computer chip manufacturing. In the 1980s, the government began developing research centers within universities to incubate fledgling companies that tapped those universities for talent and enticed seasoned expatriates to return home. Technology entrepreneur Morris Chang’s creation of the Taiwan Semiconductor Manufacturing Company (TSMC) exemplifies this process in action. Greater fiscal restraint, along with lower public indebtedness and government employment, have made for a leaner and less interfering public sector, allowing Taiwan’s economy to flourish. More expenditures flow to research and education than to social insurance.

The Vietnamese model illustrates how capitalism can function under a single-party autocracy. Vietnam’s economy closely resembles that of China in the 2000s, during its wonder years. In the face of triple-digit inflation, Hanoi permitted the development of private businesses that could operate at a profit. The government’s support of free markets enabled greater productivity and fueled an export-oriented economy. Measures included controlled deficit spending to strengthen the currency, the disposal of the majority of state-owned enterprises, and extensive investment in infrastructure and education. Vietnam’s economy has ascended from poverty into the lower middle class since the 1990s. Almost 90% of the population has health care coverage.

Capitalism’s trajectory in the United States bodes ill for the nation’s future.

While Switzerland, Taiwan, and Vietnam represent a positive way forward, the United States — notwithstanding its foundational model of less central authority — has been enlarging its government through rising public deficits, a surfeit of regulation, and ever-increasing largesse to quell economic crises.

“The balance of the American ‘mixed’ capitalist system has shifted too far toward state control, which ends up benefiting the established elites. What the United States and other countries around the world need instead are policies that encourage private competition by supporting young people and start-ups rather than protecting aging incumbents — the oligopolies, billionaires, and tycoons who now dominate the American system.”

Socialization of risk and increasing state control have entrenched the elites and preserved the status quo to the detriment of the next generations. To function properly, capitalism needs to work for the many rather than to enshrine the few.

About the Author

Ruchir Sharma is chairman of Rockefeller International.