Loop Theory - Capitalism vs. Socialism

August 26th, 2011
in Op Ed

by Frank Li

In this article, I will present a loop theory to further support my writings on politics. The loop theory is to simply and clearly define the relationship between capitalism and socialism. It was formulated by simply modifying Karl Marx’s theory of societal development.

Marx’s Theory

Figure 1 highlights Marx’s theory of societal development: evolution from some early societies (e.g. slavery) to feudalism, to capitalism, to socialism, and finally to communism.

loop 1

Follow up:

At a very high level, this theory is right. Two individuals capitalized on this theory more than anybody else: Lenin and Mao. Both of them eventually failed for the same reason: They jumped from feudalism to socialism via a violent revolution that destroyed capitalism (in its primitive stage in their respective countries) first. Yes, the Soviet Union was a total disaster, as was China under Mao (1949-1976). Yes, Mao was China’s last de facto emperor.

The Loop Theory

Figure 2 shows my loop theory by extending and truncating Marx’s theory as follows:

  • Capitalism and socialism are in a loop, requiring balancing from time to time. Capitalism is a must for prosperity. Socialism, if poorly managed, may set us back to feudalism (or even further)!
  • Communism is so far away that we all should ignore it.

loop 2

Where is everybody in societal development?

Let’s examine four representative countries (or regions) one by one:

Middle East and North Africa (e.g. Egypt and Libya): Most of them are in feudalism, both in form and in content. In form, a dictator with a family member in succession is essentially a king. In content, the #1 problem for all these countries is abject poverty of the mass population, as none of them has had a boost from capitalism yet. In other words, capitalism is the only way to achieve prosperity. Democracy per se, on the other hand, will inevitably lead to socialism, which, without capitalism, has proven to be a total disaster (e.g. the Soviet Union and China under Mao). For this reason, I am not optimistic about the outcome of the “Arab Spring” over there. The region is likely to become the next India, with democracy being a liability for prosperity. Again, there is not a single precedent of a third world country achieving prosperity via democracy.

China: China moved from feudalism to capitalism after Mao’s death in 1976, and is becoming more and more capitalistic, on track to become yesterday’s America. What the West needs to understand is that the Chinese system (= capitalism + autocracy) is like a military machine, [relatively] efficient and effective (far from being perfect though). What’s even more perilous for the West is that this Chinese machine is moving in the right direction and this system of dictatorship without a dictator cannot be easily derailed! Yes, there are many developmental bubbles in China (e.g. real estate). Yes, the economy will certainly slow-down, as compared with the current neck-breaking speed. But everything is under control – That’s the beauty of the Chinese system! The Chinese government can pick and choose which bubble to deflate when it sees the necessity. Here is the bottom line: there will be no financial crisis in China, a statement made by Randy Wray recently, to which I completely agree. Needless to say, the Chinese system has a lot of problems, with government corruption and environmental pollution being the top 2. But nothing is fundamentally and structurally wrong, especially when compared with what the West is experiencing now. For a recent insightful westerner’s view of China, click here.

Europe: Europe has had a good run over the past few hundred years. But it has so overspent its future for the present and gone so deeply in socialism now that Europe, as a whole, is on the verge of bankruptcy. Several countries are already there, with more to follow. What’s the way out? No way, according to Randy Wray, or dictatorship (= back to feudalism), according to history.

America: America is marching toward more and more socialism, on track to quickly follow Europe. To know how bad it can be and why, read this (After the London Riots) and this (The Social Degeneration Of The West). Bad enough? In case you do not know, there is absolutely no room for this kind of violence in China today! More profoundly, why can’t America compete against China? It’s the political system, stupid! China has, overall, a slightly better system and far better leaders than America!

My Closing

Human history is a history of leadership changing hands. For the past 200 years, China went through hell, with nothing but human misery and humiliation. It appears that China has finally struck its own way of success – Good for the Chinese! America, on the other hand, has had a wonderful run for the past 200 years, but is rapidly losing its way now.

America can still slow down the decline, if not stop it, by metamorphosing now. But it won’t be easy and time is running against us.

Related Articles

Articles by Frank Li

About the Author

Frank Li Frank Li is the Founder & President of W.E.I. (West-East International), a Chicago-based import & export company. Frank received his B.E. from Zhejiang University (China) in 1982, M.E. from the University of Tokyo in 1985, and Ph.D. from Vanderbilt University in 1988, all in Electrical Engineering. He worked for several companies until 2004, when he founded his own company W.E.I. Today, W.E.I. is a leader in the weighing industry not only in products & services, but also in thought and action. Dr. Li writes extensively and uniquely on politics, for which he has been called "a modern-day Thomas Jefferson" (see page 31).

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  1. Julio Spinelli says :

    I would add, that the Chinese machinery though inefficient has all the momentum of an unstoppable beast. While in the West every company is on its own and there are not unified strategies for success, everything is coherent and unified in China, or if it is not, it is quickly made that way. For instance, now foreign companies are trying to do R&D in China and keep the intellectual property in their foreign hands, China has not discovered how to stop them yet, but they will be stopped and to their surprise. The reason is simple, China will not allow their hard earned degree of technical proficiency to be used by foreigners to secure rights to new technological developments made in their land and by their people. Mark my words.

  2. Frank Li says :

    > now foreign companies are trying to do R&D in China
    No, the Chinese demanded it.

    > keep the intellectual property in their foreign hands,
    IP is a tricky thing. While we all must respect the law, imagine this: What if the Chinese had patented paper and fire powder 2k years ago (good for 5k years), and the West had to pay the Chinese for every piece of paper and every bullet it uses???

  3. Malcolm McLaren says :

    How do you factor in Fascism ?

  4. Frank Li says :

    To me, fascism means invading a foreign country by force, such as WWI, WWII, the Iraq war. It's an act, not a system. Typically it comes from a dictatorship (e.g. Hitler), but recently it came from a democracy (e.g. the U.S. in Iraq).

  5. Timothy Gawne says :

    umm.... this is weird.

    America "socialist"? What are you smoking? Our current government is moving to kill social security benefits, but keep the regressive taxes on labor, and send the money to Wall Street insiders. This is NOT "socialism". Crony capitalism, corruption, piracy, sure, but not "socialism". You have been made the mistake of most Americans of believing that the labels given to actions by the corporate press actually correspond to reality..

    And Europe moving more deeply into socialism? Are you insane? The Europe that is raising taxes on working people, cutting taxes on finance, killing social benefits, and throwing countless trillions of dollars at corrupt central bankers, is moving more deeply into socialism? In your dreams.

  6. Louis says :

    What is being skipped in this discussion of China is the level of interdependence between China and the US. They are both completely dependent on each other, not just the US on China, as commonly portrayed.

    What if corporations actually opened factories in North America again? What if import duties were imposed? What if the dollar depreciates against the Yuan, and the price of everything in WalMart goes up? China is depleting its resources, Canada meanwhile is still largely unexplored (minerally).

    Education has made the population dumber in North America, it is no accident. In China education amounts to teaching how to memorize unbelievable amounts of information.

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