How China Became So Powerful

back in the old days this part of the world used to be the economic superpower of the planet there were dynasties that discovered everything from the compass to printing to making paper to gunpowder they would lead huge expeditions around the globe this was china the middle kingdom and right next door india this was the center of the global economic universe but around the 1800s that started changing over here in europe and the united states there was a major revolution that started taking place science then machines then weapons trains cars flight bombs factories cities and with

their new power these countries started to expand to take over large swaths of the map china remained a great civilization but as the west started showing up knocking on china's door with their big guns china couldn't really match their firepower and they had to concede land to britain which is how we got hong kong the industrial revolution didn't really happen in china the same way it did in the west and by the middle of the 1800s china began a massive decline in its economic standing in the world a century later that situation got way worse

as china was invaded by its neighbor japan china's economy was no longer the prosperous middle kingdom but rather a shadow of itself a poor country that was being occupied by outsiders once world war ii was over the west devised a new global economic and financial system it was modeled after the economic system that was working so well in the west capitalism free enterprise still with some government oversight and high taxes for the rich and corporations but it was still capitalism and after the war this capitalism would go on to become a miracle for many countries

rebuilding germany france japan for many in the west post-world war ii capitalism was like a magic elixir that was fixing everything it was working so well that more and more people started to believe that we needed to get government out of capitalism and let the market just do its thing one of the major advocates for this idea of unfettered capitalism was this guy never in history been a more effective machine for eliminating poverty than the free enterprise system in the free market a chicago-based economist named milton friedman if they fail they bear the cost if

they succeed they get the benefit the idea at the core of this financial and economic system was that companies would get investment from people who own shares in that company we call this a corporation and that the sole purpose of this corporation was to make money for these owners or these shareholders in milton friedman's own words quote the social responsibility of a business is to increase profits that is the role of a business increasing short-term gains for shareholders would benefit all of society according to this model and if you look at the data in the

united states and the west milton friedman sort of had a point and it led to huge prosperity in the west as the u.s economy exploded wait a minute but what about china are we talking about china and its economy you know the middle kingdom china so while the u.s and western economies are thriving because of this corporate free market capitalism that was taking over the world china was descending further and further into decline instead of joining the capitalism party that the west was spreading throughout the world china resisted turning to a one-party rule communist system

headed by this guy mao zedong who destroyed any chance of china's economy ever joining the prosperity happening around the world by the 1970s china was a place of widespread poverty the once prosperous kingdom had reached rock bottom but that was all about to change so it's the 1970s and this is china's new leader deng zhao ping he came into power hoping to turn around this 150 years of humiliation in china the decline of china as a superpower elsewhere in the region china's neighbors had economies that joined the global economic party that was happening in capitalism

and they were thriving they saw immense economic miracles and pulled millions out of poverty deng specifically went on a visit to singapore early on in his term where ethnic chinese had adopted the free market and they were thriving he felt inspired the maoist economic doctrine that had failed was over and it was time to see if china could rebuild its economy experimenting with some version of capitalism but he had to do this carefully so as not to disrupt the one-party rule that china had created so he decided to just focus on one little village a

sleepy village in southern china of just around 30 000 people right across the border from the british controlled hong kong which at the time was thriving because of its hardcore capitalistic economy deng xiaoping designated this little town as quote a special economic zone where foreign companies could set up and invest in a very capitalistic free market hong kong would sort of act as a bridge between western businesses and this little gateway into communist china it was still socialism but with some chinese capitalistic characteristics what happens next is arguably the most mind-blowing economic miracle ever to

have taken place on planet earth this little sleepy village that was a special economic zone in china exploded from a little fishing village with a little more than a few thousand people and some rice paddies to a massive city of over 10 million people the average income went from one dollar a day to over thirty thousand dollars a year this starts happening all over china and meanwhile milton friedman's back in the us being like yep told ya soon there were a bunch of cities designated in china for special economic activity or basically capitalism in a

socialist country and more and more foreign companies flocked to china for its cheap labor it became the world's factory china joined this trend of other asian economies and eventually passed them up to become the second largest economy on earth you can see this in a graph this year asia will actually pass the rest of the world in accounting for more than 50 of global gdp it is a massive economic transformation and it explains why china has become so powerful okay but wait this is a very wonderful story about capitalism and its ability to lift millions

of people out of poverty and to industrialize a country seemingly overnight but there's another side to this coin that we need to talk about i have two graphs i want to show you they look like this okay let's look at this one first it's called the elephant graph do you sort of see why let's deconstruct this graph and try to understand what this says about the past 30 years of the rise of china on this axis is everyone on earth ranked by their income grouped into percentiles so these people down here make an income that

is the 10th percentile the lowest 10 in the world and then the 20th percentile and so on and so on up to these people up here who are the richest in the world they have an income that puts them in the 90th percentile this axis here shows how much growth in income these people have had over the past 35 years basically during the heyday of shareholder capitalism and the rise of china so you'll see how this plays out in just a second let's start plotting how much income growth each of these groups saw over the

past 35 years the bottom 10 percent saw their incomes grow by around 75 not bad these are people who live in the poorest countries who make the lowest income in the world the 20 to 30 percentile saw a huge growth in their income 125 percent and more over the past 35 years this is like the new middle class in china and other asian countries who saw huge income growth due to globalization they did really well under this system but then you start to get to the people in the 50th and 60th and 70th and 80th

percentile this is basically people who live in the middle class in the west their incomes have grown much slower sometimes under 50 percent over the course of 35 years which is little over one percent a year not very much income growth and some of these people in the west have seen their incomes shrink like the blue-collar workers in detroit and the rust belt whose jobs disappeared to china so so far you can sort of see why this makes sense the people in china who benefited from this mass industrialization saw huge benefits and the people here

in the united states and in the west who saw jobs go overseas to china saw a way slower growth in their income but watch what happens next when we get to the groups of people who are at the 99 percentile basically the richest 1 in the world and for this i actually have to stretch out the graph to get us a little bit more granular these are the people who have the highest incomes in the world let's see how their income has grown over the past 35 years you can see that their income has exploded

under this system they're seeing tripling of their income in the past 35 years now a reminder that this is 35 years of data from every economy on earth this shows everyone on the planet so this gives us a view of who are the winners and the losers of this shareholder capitalism that has globalized to asia and around the world the top 1 of income earners saw the biggest benefits from this system they are the ones who disproportionately benefit from shareholder capitalism and the growth of globalization okay so that's my first graph it's the elephant graph

it is a very useful way to see one of the results of this version of capitalism and the growth of china the second graph looks like this this shows the amount of co2 emissions by country you've got europe in the united states and then up here you've got china the world's largest emitter of co2 like the elephant graph this graph combines loads of data to show us that shareholder capitalism focuses so much on short-term profits for shareholders that it leaves out any consideration for how this economic activity affects the planet we live on and our

ability to live on it i know you've heard this message a bunch and if you're like me it is hard to not become sort of numb to this impending crisis that we don't really know what it looks like and it feels like there's nothing we can do but we have to do everything really quickly but let me just reiterate in my own words that it is now a certain fact that our global climate is changing in such a way that it will very likely lead to immense shifts on our earth and our ability to live

on our earth it's already happening it will continue to happen and all we can do now is maybe put on the brakes a little bit [Music] okay let me just wrap this up and give you my final thought on what this all means i'm not showing you all these graphs because i'm just like a data nerd who loves to look at graphs although i kind of am sorry i'm showing you these graphs because the story of the rise of china is often a story of how capitalism has pulled tens and hundreds of millions of people

out of poverty and it has and that's amazing but these graphs give us a view of what it has also done what this version of capitalism also incentivizes and results in if we're going to consider the effects of this version of capitalism we have to look at all of its effects not just some of them so what's the solution is it socialism no it's not it is simply a new version of capitalism a reframing of how we think about business and globalization one that old milton friedman would despise and one that more and more businesses

are actually realizing we must adopt the solution isn't to scrap capitalism altogether but instead to expand it to not just focus on shareholders and delivering them short-term profits as quickly and as efficiently as possible but to also focus on other people who are affected by the business you can call these stakeholders this is like the customers and the suppliers and the employees and the government and the overall economy and the planet and of course shareholders this is called stakeholder capitalism and it's basically just an acknowledgement that businesses that focus only on profits for shareholders don't

end up benefiting everyone there are winners and losers it's not good for a huge swath of the population nor for the changing climate oh and by the way this isn't some fringe liberal idea some of the biggest companies here in the united states like walmart apple jpmorgan have signed on to adopting a new model of capitalism this is changing and in the next five to ten years i believe we will see a new version of how businesses interact in the economy so you're probably wondering listen i clicked on a video about the rise of china

and we're ending here with stakeholder capitalism the rise of china is a story of capitalism a certain version of capitalism it's a story about how capitalism can morph and change depending on what effects we want businesses to play in our society if we want to produce the most amount of wealth in the most efficient way then the old shareholder model actually really works well for that but if you want businesses to benefit everyone including our children and our grandchildren and their ability to live on this planet then our capitalism needs to pull in more priorities

than just profits for shareholders what may be right for one stage in the development of an economy may not be right for another stage the so-called greenhouse effect is created by carbon dioxide a colorless odorless gas so i got to dig through a lot of data for this video and i was able to partner with the world economic forum which is a think tank that i respect they actually pioneered this idea of stakeholder capitalism decades ago well before apple and walmart realized that it was a good idea the head of the world economic forum just

launched a book called literally stakeholder capitalism it's an in-depth look at not only the rise of asia and china but also other major trends that help us understand the need to upgrade our capitalism the book is really good it's packed with useful information and graphics it's easy to read and to comprehend i'm going to put a link in the description where you can learn more it is available for you to purchase now if you want to get a deeper look into the future of our economy thank you world economic forum for partnering with me on

this video uh the davos summit happened this week and um i'm really glad that i was able to be a part of it so hope you're all doing well having a good year so far 2021 there's a new president down the road and it's kind of exciting and i'll see you in the next one