Loop Theory – Capitalism vs. Socialism

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.

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.

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 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).