When Americans discuss homelessness, capitalism frequently finds itself sitting in the defendant's chair.
We are told that homelessness demonstrates the failure of capitalism. We hear that inequality proves markets aren't working and that government must intervene more aggressively to correct capitalism's deficiencies.
But there is another country whose homelessness crisis deserves considerably more attention: Communist China.
Recent reports describe a disturbing rise in homelessness among Chinese citizens, particularly young people, as China's economy struggles with unemployment and diminished economic opportunity.
The contrast between China and the United States raises a question that is rarely asked:
What if capitalism isn't the cause of poverty and homelessness, but instead humanity's most powerful mechanism for escaping them?
China's Staggering Homelessness Estimate
China has approximately 1.4 billion people. The United States has approximately 342 million.
Recent reporting has circulated an estimate that approximately 47.5 million Chinese people are homeless.
If that estimate is accurate, the numbers are staggering.
Using a Chinese population of approximately 1.4 billion:
47.5 million ÷ 1.4 billion = approximately 3.39%
Compare that with the United States.
The latest federal Point-in-Time count found approximately 746,000 homeless Americans. With an American population of roughly 342 million:
746,000 ÷ 342 million = approximately 0.22%
That's POINT 22 percent.
Using those figures, China's estimated homelessness rate would be approximately 15.5 times the American rate on a population-adjusted basis.
In absolute numbers, the comparison is even more startling. The reported Chinese estimate is approximately 64 times the latest U.S. count.
There is, however, an important qualification. China's 47.5 million estimate and America's HUD count were not produced using the same methodology. America's figure is a formal Point-in-Time count conducted under a defined federal methodology, while China's national homelessness statistics are far less transparent. We should therefore resist pretending these figures constitute a scientifically controlled apples-to-apples comparison.
But even with that qualification, the scale of the Chinese estimate should cause us to reconsider the conventional narrative about capitalism and homelessness.
You Cannot Distribute Wealth Until Someone Creates It
The fundamental economic problem with communism begins with something remarkably simple:
Before wealth can be distributed, wealth must first be created.
Government can redistribute money.
Government can confiscate property.
Government can transfer resources from one citizen to another.
Government can issue benefits, construct public housing and establish welfare programs.
But none of those activities creates the underlying abundance being distributed.
Human beings must first produce it.
Capitalism is extraordinarily good at doing precisely that.
A capitalist economy gives millions of individuals incentives to discover what other people need and then figure out increasingly efficient ways of providing it. Entrepreneurs seek profit. Investors supply capital. Workers develop skills. Businesses compete for customers. Successful companies expand. New technologies increase productivity. Falling costs make yesterday's luxuries available to ordinary people.
The profit motive so often condemned by capitalism's critics is actually one of the mechanisms that makes this enormous coordination possible.
If somebody discovers how to manufacture homes more cheaply, transport food more efficiently, generate inexpensive energy, automate repetitive labor, or create a product millions of people want, capitalism gives that person an incentive to do it on an enormous scale.
That process creates abundance.
And abundance is the ultimate enemy of poverty.
When Government Controls the Economy
China provides an especially interesting case because modern China isn't economically communist in the pure Marxist sense.
Beginning with the market reforms associated with Deng Xiaoping, China permitted private enterprise, foreign investment, entrepreneurship and other market mechanisms that helped generate extraordinary economic growth. In other words, some of China's greatest economic achievements occurred precisely when the Communist government allowed more capitalist activity.
But China never stopped being governed by the Chinese Communist Party.
The state retains enormous authority over economic activity, industry, finance, information and individual citizens. Government policy can redirect entire industries on a scale difficult to imagine in the United States.
And China's current problems provide a warning about what happens when political planners believe they can engineer economic outcomes from above.
China's Young People Are Paying the Price
Perhaps the saddest aspect of China's reported homelessness crisis is the age of many of its victims.
Reports surrounding the 47.5 million estimate claim that approximately 61% are younger than 33.
These are people who should be entering the most productive period of their lives—working, building careers, establishing households, starting businesses, marrying and raising families.
Instead, reports describe young Chinese people sleeping in parks, under bridges and in other public spaces as they struggle to find employment.
China's youth unemployment problem has collided with weakness in its economy and enormous structural changes in employment.
Among those changes is automation.
When Capitalism Automates, the Economy Evolves
Here we encounter another critical difference between government-directed economic planning and market-driven innovation.
We should acknowledge something at the outset: automation can eliminate jobs in a capitalist economy too. When a machine, computer program, robot, or artificial-intelligence system can perform work previously performed by a human being, some workers can lose their jobs. For those workers, the disruption is real, and the transition to new employment can be painful.
But that is only the first half of the economic story.
In a competitive capitalist economy, automation is generally pursued because an entrepreneur or business believes it can produce something better, faster, or less expensively. Greater productivity can reduce costs and free capital for other purposes. Competition then gives businesses powerful incentives to put that capital to work—expanding production, lowering prices, developing new products, investing in new technologies, entering new markets, or creating entirely new businesses.
Profits themselves attract competitors and investment.
Consequently, while innovation destroys some categories of employment, it can simultaneously create the economic conditions from which entirely new categories of employment emerge.
Computers provide one of history's clearest examples.
Imagine looking at the computer revolution solely through the eyes of workers whose jobs could be automated. Computers eliminated or dramatically reduced the need for countless clerical and repetitive occupations. Typing pools disappeared. Human "computers" who once performed mathematical calculations became obsolete. Bookkeeping, filing, inventory management, banking, manufacturing and countless other activities required fewer people to accomplish the same amount of work.
Had technological progress stopped there, computers could reasonably be described simply as job killers.
But it didn't stop there.
Computers helped create software development, semiconductor manufacturing, computer networking, cybersecurity, cloud computing, digital graphic design, e-commerce, online banking, social media, smartphone applications, data science and countless other industries and occupations that previous generations couldn't have imagined.
Entire corporations worth hundreds of billions—or even trillions—of dollars arose around technologies that hadn't previously existed.
And those industries created demand far beyond computer programmers themselves. They needed accountants, salespeople, attorneys, construction workers, technicians, marketers, managers, designers, engineers, customer-service representatives and thousands of other kinds of workers.
The computer didn't merely replace labor. It changed what human labor could accomplish.
Artificial intelligence may represent the next great example.
AI will almost certainly automate some tasks currently performed by human beings. Some existing jobs may disappear altogether. Others may require fewer workers. Pretending otherwise would weaken the case for technological innovation.
But once again, that is only the beginning of the story.
AI can dramatically increase the productivity of programmers, engineers, doctors, scientists, designers, manufacturers, researchers and entrepreneurs. A small company may someday accomplish work that previously required hundreds of employees. Scientists may analyze enormous datasets in hours rather than months. Engineers may design products faster. Entrepreneurs may launch businesses with capabilities that once required enormous amounts of capital.
And, just as nobody standing beside a 1970s mainframe computer could have listed all the occupations the computer revolution would eventually create, we should be extremely skeptical of anyone claiming to know all the jobs AI will create in the decades ahead.
Many of them probably don't have names yet.
This is where capitalism possesses an enormous advantage.
A central planner must attempt to predict where displaced workers, capital and resources should go next.
A market doesn't require one person—or one committee—to know the answer.
Millions of people experiment simultaneously.
One entrepreneur sees an opportunity in medicine. Another sees one in robotics. Another starts an AI company. Another discovers an entirely new consumer product. Investors decide which ideas deserve capital. Consumers decide which products they actually value. Successful companies expand and hire. Failed experiments release their resources for someone else to try again.
The process can be messy. It can be disruptive. And it certainly doesn't guarantee that every worker displaced on Monday will have a better job on Tuesday.
But creative destruction is fundamentally different from permanent destruction.
Market-driven automation destroys certain ways of producing things while creating opportunities to produce entirely new things. The profits generated by greater productivity provide both the resources and the incentive to invest again.
That cycle—innovation, productivity, profit, investment, expansion and further innovation—is one of capitalism's greatest engines of wealth creation.
Government-directed automation operates under a different incentive structure. When political authorities decide that automation must advance according to a national plan, they can accelerate technological displacement without the same decentralized market mechanisms continuously searching for profitable new uses for displaced labor and capital. Government planners can order an industry to transform. What they cannot order into existence is the next great entrepreneurial idea.
That distinction matters enormously.
The proper response to workers displaced by technology isn't to stop technological progress.
Nor is it to assume that government can predict the occupations of the future.
The answer is to maintain an economy sufficiently free, competitive and entrepreneurial that human ingenuity can create those occupations before anyone knows what they will be.
Computers demonstrated that process spectacularly.
Artificial intelligence may demonstrate it again.
And Then Comes the Ultimate Irony
Perhaps nothing illustrates the problem more vividly than what some unemployed young Chinese citizens reportedly do when economic opportunity disappears.
They turn to Communist Party-run service centers.
These centers can provide such things as Wi-Fi, air conditioning, food, water and somewhere for unemployed people to spend their days.
Consider the irony.
A government presides over an economic system in which young citizens struggle to find productive employment. Some become homeless or economically desperate. Then the political institution exercising enormous control over that economy provides basic necessities to those citizens.
Government contributes to dependency—and then presents government as the solution to dependency.
The things being offered make the contrast with American living standards particularly striking. Internet access, food, drinking water and air conditioning are ordinary parts of life for enormous numbers of working Americans, including many people earning relatively modest wages.
The capitalist ideal isn't to make a citizen grateful to a government office for free Wi-Fi.
It's to create an economy prosperous enough that he can buy his own.
That distinction is far more important than it sounds.
One system makes the individual increasingly dependent upon institutions controlled by the state.
The other seeks to make the individual prosperous enough that he doesn't need them.
The Moral Case for Capitalism
This is why I believe the defense of capitalism should go beyond economics.
Capitalism isn't merely more efficient.
Its fundamental principles are morally superior because they place economic agency in the hands of individuals rather than political authorities.
You decide where to work.
You decide what to buy.
You can save your money.
You can invest it.
You can own property.
You can start a business.
You can invent something.
You can negotiate your wages.
You can take a risk.
And if you create something valuable enough that millions of other human beings voluntarily choose to purchase it, you can become extraordinarily wealthy.
Critics see that wealth and ask why one individual should possess so much.
Capitalism asks a different question:
What did that individual create that millions of people voluntarily decided was valuable?
This is not an argument that every corporation behaves honorably or that every wealthy person earned every dollar virtuously. Fraud, coercion and corruption require laws and consequences.
Those are failures of human beings.
They are not failures of the principle of voluntary economic exchange.
Stop Blaming Capitalism for Government's Failures
America certainly has a homelessness problem.
Nearly three-quarters of a million homeless people is nothing to celebrate. We should be asking difficult questions about housing supply, mental illness, addiction, family breakdown, regulation, zoning, employment and the enormous amounts governments spend attempting to address homelessness.
But we should also stop reflexively blaming capitalism for every social problem occurring inside a country that practices capitalism.
When government restricts housing construction and housing becomes scarce, that isn't necessarily a failure of the market.
When regulation dramatically increases the cost of building, that isn't necessarily a failure of capitalism.
When government programs create destructive incentives or dependency, the resulting social problems cannot automatically be placed at capitalism's feet.
And when government attempts to correct previous government interventions with still more intervention, we should at least consider the possibility that we are treating the medicine as though it were the cure.
Poverty Is Not Solved by Redistributing Scarcity
Communism begins with the seductive promise that government can distribute society's resources more fairly.
Capitalism begins with a different question:
How do we create so much that ordinary people become prosperous?
That difference matters.
You cannot regulate a society into abundance.
You cannot redistribute what nobody has produced.
You cannot eliminate poverty simply by dividing scarcity into increasingly equal portions.
Someone has to create the wealth first.
Someone has to build the homes.
Someone has to grow the food.
Someone has to manufacture the air conditioner.
Someone has to build the telecommunications network carrying the Wi-Fi signal.
And someone has to take the financial risk required to turn an idea into something millions of people can actually use.
Capitalism provides powerful incentives for human beings to do all of those things.
Communism attempts to control the results.
China's current difficulties should therefore provoke a larger conversation than simply how many homeless people live there.
They should force us to ask what kind of society we want.
Do we want citizens standing in line for necessities supplied by political institutions?
Or do we want citizens producing enough wealth that those necessities become ordinary features of everyday life?
The enduring solution to poverty isn't the redistribution of scarcity.
It is the creation of abundance.
And no economic system in human history has demonstrated a greater capacity for creating widespread abundance than capitalism.