URBANA — Both China and the United States are groping with how capitalism should be applied in their economies, a former Asia business editor for The Economist magazine said.
The path each country will take from here appears "muddled," said Tom Easton, now the magazine's American finance editor.
Easton, who spoke Thursday at a symposium on the University of Illinois campus, said Hong Kong — with its laissez-faire economy — was long considered "a place of tremendous opportunity" in Asia.
But now, entrepreneurs are flocking to mainland China for "tremendous opportunity and tremendous (economic) freedom," he said.
He said Michael Bloomberg — the financial media titan who now serves as New York mayor — predicted long ago that when Britain handed over Hong Kong to China in 1997, Hong Kong would take over China rather than the other way around.
However, Easton said entrepreneurs in China still tend to operate privately and quietly, realizing that "today's capitalist could be tomorrow's villain."
Many ventures in China are not recognized as "legal" businesses, he said, but Chinese officials allow those "gray" companies because they're at "the heart of economic success."
Easton said when those companies become "legal," they tend to become "radically less profitable."
Privatization in China is generally thought to have begun in 1992, Easton said. But in most cases, partial privatizations and joint ventures didn't result in more profits — the automotive industry being an exception.
Only in cases where entities were bought out by managers did privatization prove "very successful," he said.
Some Chinese factories are assailed in the West for their harsh working environments. But Easton said many of the factory owners began their careers working under similar conditions.
He said Foxconn, an electronics manufacturer that supplies Apple and has come under criticism for its working conditions, has to offer better circumstances than other employers in order to keep its employees.
Easton, a champion of free markets, contended that competition does more to improve working conditions than regulation does.
Turning his attention to the United States, Easton said Dodd-Frank financial reforms, passed in the wake of the 2008 financial crisis, have given the U.S. government astonishing authority over banks' loan portfolios.
That authority, he warned, could lead to greater homogeneity in lending and actually increase financial risk.
Easton said there is "tremendous resistance to Dodd-Frank" and predicted backlash.
In some respects, he said, there's "a stronger endorsement of capitalism in China than there is in the U.S."
Easton said he has been impressed by the proficiency of many Chinese government leaders and how well they do their homework.
"You can't be an outright critic of China," he said. "They've done too many things that are good."