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COMMON CURRENCY: Prosperity requires more than just a free market

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It certainly has been an interesting week for news. Oil prices went down, the trade deficit went up. The stock market went up. Then it went down. Stimulus spending saved the economy, or maybe not. The deficit is wrecking the economy, or maybe not. Inflation is on the horizon. Or maybe it is a deflationary spiral that is looming.

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GM announced plans to return to private ownership. An influential member of Congress conceded the government obsession with home mortgage finance was a mistake, and the last U.S. combat brigade left Iraq, heading in the opposite direction down the same road used on the assault of Baghdad seven years ago.

So, just is case you missed it, in the midst of all of these conflicting and confusing headlines, it is worth noting that China officially became the world's second largest economy this last quarter, producing more goods and services than everyone else on the planet except the U.S., and overtaking Japan by just a tad for the number two spot.

Economists now predict China will become the world's largest economy by 2030, now less than 20 years away.

In 1982 reform minded communist leaders created a small free trade zone across the border from Hong Kong as an experiment. The rest, as they say, is history. For the next thirty years China's economy sustained a torrid pace of development exceeding 10 percent per year. In one generation China lifted several hundred million people out of poverty. It is a remarkable national achievement and a testament to the wealth creating potential of free markets.

But for all China's new found economic power, many progressive leaders in China are not so confident they can keep their economic miracle from slipping through their fingers. For all its new found wealth, China's government is pervasively corrupt. Blatant cheating is rampant at Chinese universities, and bribes paid to government officials are still shrugged off as just another cost of doing business

So before we start worrying about a new heavyweight contender looking for a title shot against Uncle Sam, we should realize what some really smart people in China are already starting to figure out. In the race for economic dominance, the U.S. has an ultimate secret weapon that the Chinese may never be able to match.

For all our faults, we are still the envy of the world for two things. A functioning civil service that is largely free of corruption and the great democratizing influence of a public education system that provides broad access to higher education based on meritorious achievement.

Recently a prominent high ranking member of the Chinese military, Lieutenant General Yazhou Liu, warned the communist government that it must embrace democracy or perish. Apparently, General Liu has been describing the American system as "designed by geniuses for use by the stupid." Well, that is not exactly the eloquence of Thomas Jefferson, but he is making his point to his countrymen as a military man, that pervasive corruption by petty officials is eroding morale in the ranks of the average Chinese soldier, and an unmotivated solider does not fight very well.

The Chinese government has been working harder to put a stop to the worst of the corrupt behavior of its cohorts, but General Liu warns that the only way to solve the problem is to democratize the political system and allow real political competition against entrenched officials who currently have little incentive to curb their excesses and behave themselves.

General Liu points out that not only do democratic societies tend to enjoy far lower levels of corruption; they also tend to have much greater potential for rapid innovation. This is the ultimate secret weapon that General Liu is concerned about: The inherent power of a democratic society for invention and innovation, to reward meritorious achievement and promote the full and free expression of the talents of industrious people.

I thought it worth noting General Liu's comments this week, because all across the country, parents like me are getting ready to send their kids back to school, or as in my case, off to college at a large public university.

Sometimes we can't see the forest for the trees. But after walking around a large public university campus for the last couple days watching several thousand very excited and enthusiastic kids bumping into each other as they all try to find their dorm rooms and lecture halls, I think General Liu is right. We have an awesome potential for greater prosperity ahead.

Alan J. Zemek is a Park Rapids area developer and author of "Generation Busted: How America Went Broke in the Age of Prosperity." You can follow his blog, or comment on this article on his website, www.generation busted. com.

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