My Winning Essay on the Morality of Capitalism

State control and central planning lead to economic misery.

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The American Enterprise Institute (AEI) launched a multiyear effort to develop and elevate core arguments about why free enterprise is not only the most efficient economic system in existence but also the most moral. Part of the effort was an essay competition in 2022. My essay was one of the top three winners. AEI compiled all the winning essays and articles from its own scholars into a PDF file anyone can download. I’m posting my essay below. I also invite you to check out other essays and share this PDF file widely. I have learned much from reading other scholars’ work in it. 

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How Free-Market Ideas Turned Impoverished China into an Economic Powerhouse

History has often been shaped by ordinary people doing extraordinary things. Do you know a group of illiterate farmers laid the foundation for China’s breakneck economic growth more than four decades ago?

The Chinese Communist Party (CCP) took control of China in 1949, after defeating the Nationalist Party in a brutal civil war. The CCP’s leader, Mao Zedong, promised the Chinese people a socialist paradise in which the benevolent state would care for every citizen’s needs, including food, shelter, health care, education, and employment.

To transform China into this socialist paradise, Mao launched radical socialist reforms. In cities, all industries were nationalized, and private businesses were eliminated. The government dictated what to produce—and how much—through strict central planning. In the countryside, the CCP launched land reform in 1951 by forcefully redistributing landowners’ property to poor, landless farmers. My great-grandfather was one of the two million landowners who lost everything overnight.

The poor farmers didn’t enjoy their landownership for long. In 1953, the Chinese government announced an agricultural collectivization movement. At first, farmers were forced into “mutual help teams,” sharing cattle and farming tools. The concept of what was “yours” versus “mine” was replaced by everything being “ours.” Then, these teams were merged into cooperatives and later into large “people’s communes.”

Through the collectivization process, the Chinese government gradually took control of the land that had been distributed to poor farmers. By 1958, there was no private landownership left in China. Farmers had a rude awakening when they realized that by supporting the government’s confiscation of property from “rich” people, they ended up helping the government abolish property rights altogether. They also learned the painful lesson that the government can easily take away what it gives you.

Without private landownership, farmers’ lives and their relationship with the government changed dramatically. Private farming was prohibited, and anyone who engaged in it was labeled “counterrevolutionary” and persecuted. Farmers were required to sell their produce to the government; no private sales were allowed. The government imposed a stringent food rationing system. People of the same gender and age group received the same amount of food monthly, regardless of how much work each person put in.

Farmers couldn’t even decide for themselves what crops to grow. Instead, they had to follow the local Communist leaders’ orders. Unfortunately, many local Communist leaders didn’t know much about farming, so their orders were unwise, resulting in disasters. Grain output dropped. People were constantly hungry, but there was no incentive to work hard and produce.

Undeterred by the agriculture collectivization movement’s failure, Mao launched the Great Leap Forward movement, aiming to transform China from an agricultural society to a Communist industrial powerhouse through central planning that ignored the laws of nature and economics.

One element of the Great Leap Forward movement was the campaign to increase steel production by any means necessary. People in China, including in my father’s village, built small backyard furnaces to meet their steel production quota. Everyone from 8-year-old kids to 80-year-old seniors pitched in on round-the-clock shifts to keep the backyard furnaces burning. Anything that contained metal, including farming tools and cooking pots, was smashed and fed into the furnaces. These backyard furnaces generated insufferable air pollution and produced no steel but only useless, low-quality pig iron. It turned out that this government-imposed steel campaign was a complete waste of time, energy, and valuable resources.

Rather than turning China into a socialist paradise, these socialist policies created a hell on earth. There were shortages of everything, especially food. My parents often had to get up early to wait in long lines outside our local grocery store, hoping to buy a pound of rice or several ounces of cooking oil. They knew if they showed up later, nothing would be left.

Between 1958 and 1962, China experienced the worst famine in human history. An estimated 30–45 million Chinese people were starved to death. Among the lives lost were my baby uncle, my grandaunt and her family of five, and my dad’s maternal grandmother.

In addition to the famine, every other aspect of the socialist society fell apart. Health care was cheap, but there was a shortage of doctors and medicine. Colleges were free, but students were only allowed to study subjects the CCP deemed proper and ideologically pure. No one was unemployed because the government gave each person a job. But you were out of luck if you didn’t like the job. Your government-assigned job was tied to your food ration, and you would receive no food if you refused to work.

At the time of Mao’s death in 1976, more than 90 percent of the Chinese population lived below the poverty line, with less than $2 a day. The only equality socialism achieved was an equal distribution of poverty and misery. Mao’s successor, Deng Xiaoping, finally had to admit that failed government policies were responsible for the Chinese people’s economic hardship. Decades of central planning resulted in misallocated capital, which disincentivized productivity, and widespread shortages. Deng recognized that the only way to save the CCP’s one-party rule was to get the economy going, and he desperately searched for ideas. Eventually, he found what he was looking for from a group of people he least expected.

In 1978, a group of 18 farmers in Xiaogang village, Anhui province, signed a secret agreement with their village leader, Yen Jingchang. They asked to divide the village’s land into family plots and let each family be responsible for its plot’s production. The farmers wanted to make their own planting decisions and choose how much work to put in. At the end of the year, after fulfilling the government quotas, these farmers could keep any surplus and sell it on the black market if they wished. Such an approach was risky for all involved because it broke the law and was one of the most evident rejections of the CCP’s socialist policies to happen in the country since 1949. Yet for a village that lost half its population due to famine, the 18 farmers felt they had no other option. Although illiterate, they understood the most fundamental aspect of human nature: —Incentive matters.

To strengthen their resolve, one of the agreement clauses was that, should one of them be caught and executed by the government, the other survivors swore to look after his family and raise his children until they were 18. Each farmer signed the agreement by sticking his thumb in red ink and then pressing it on the contract next to his name. Yen hid the signed contract under the roof of his house.

The first year after this contract went into effect, the 18 farmers produced more grain than the entire village’s combined production in the previous five years. It is incredible what people can do when free to choose what’s best for them.

Success attracted attention, and other villages began to copy the “Xiaogang model.” When Deng heard of it, he demonstrated his pragmatism. He was eager to lend his support to an economic reform idea, if it was tested successfully on a small scale. He praised the villagers of Xiaogang and spared them from any punishment.

Furthermore, Deng directed other Chinese regions to adopt the Xiaogang model. He later rebranded the model a “household responsibility system,” which meant that each household in a village was responsible for the land allocated to it and was allowed to make its own planting and production decisions.

The household responsibility system revived China’s agriculture sector and motivated Deng to launch a sweeping economic reform in other industries, open China to the outside world, invite foreign investments, and, most importantly, loosen the government’s grip on the Chinese people. The Chinese government doesn’t guarantee employment anymore, but people get to choose where they live and what they do for a living. Food rations are no longer normal, and farmers get to decide what to produce based on market demand. Entrepreneurship and private businesses are no longer condemned but encouraged.

These economic reforms have lifted 800 million Chinese people out of poverty and transformed China from an impoverished nation into the world’s second-largest economy in merely 30 years. Deng was mainly credited for engineering China’s economic miracle. However, the real credit should go to the free-market idea and those 18 courageous farmers willing to risk their lives to try it.

I immigrated to the United States in the early ’90s, before China reached its full economic boom. When people asked me what impressed me most in America, I always mentioned grocery stores. Many immigrants from socialist countries share my sentiment. We have been amazed by the abundance of supply and lack of long lines in grocery stores in the United States. Some stores even open 24 hours a day so customers can get what they want whenever they want. To me, the material wealth Americans enjoy is a manifestation of their freedom, because prosperity and liberty usually go hand in hand.

China’s economic transformation and my experiences living in two different economic systems have taught me that socialism doesn’t result in fairness and prosperity but a free-market economic system does. A free-market economic system is moral because it recognizes and protects individual and property rights. In such a system, an individual feels a sense of ownership in their future. As a result, they are incentivized to be productive, be creative, take risks as they see fit, and be rewarded for their hard work. The result of these individual efforts is a higher standard of living for everyone.

A free-market economic system is moral because it is fair and just. When people know that the rule of law applies equally to all and that they have an equal opportunity to pursue their values, they accept the idea of unequal outcomes based on unequal efforts and talents. It is fair and just that Elon Musk, LeBron James, and Oprah Winfrey earn vastly more than the average person, and it would be unfair and unjust for them not to be allowed to make considerably more than average. If you care about fairness and justice, you should advocate for a free-market economy, not a socialist one.

China’s economic growth has significantly slowed in recent years, precisely because the current CCP leadership has rejected further opening China and implementing broader free-market-based reform. Instead, it insists on maintaining state control in critical industries and using technology, such as facial recognition and surveillance cameras, to intensify its suppression of Chinese people’s freedom.

Meanwhile, in the United States, there is growing acceptance and adoption of socialist ideology and policies. Excessive government regulations, taxes, tariffs, and other anti-free-market policies have crippled some economic sectors while failing to achieve equality and fairness, despite pronounced good intentions. The nation’s baby formula shortage has been a heartbreaking reminder of what can happen when government policies distort market functions and sever the links among supply, demand, competition, and choices.

Maybe both Beijing and Washington should learn the lesson those 18 illiterate Chinese farmers taught us in the ’70s: State control and central planning lead to economic misery. Only when an individual is free to choose what’s best for themselves and a free-market economy can function without excessive government interference can a society enjoy long-lasting peace and prosperity.