Ray Dalio on why Chinese capitalism is on the rise—and why American capitalism is in desperate need of a fix

October 27, 2020, 10:50 PM UTC

As head of the world’s largest hedge fund, Bridgewater Associates, Ray Dalio has witnessed firsthand China’s rise into a global economic superpower.

“I’ve been going to China regularly since 1984; I know the people, I’m intimately involved with economic policymakers [there],” Dalio said Tuesday during this year’s virtual edition of the Fortune Global Forum

Having developed an “intimate understanding” of the Chinese economy and witnessed how the country has gradually opened up its markets to the rest of the world, Dalio believes China is well on its way to superseding the U.S. in terms of economic growth and potential in the coming years—a topic he expounds on in his upcoming book, The Changing World Order: Why Nations Succeed and Fail.

“It’s called state capitalism, but they’ll produce more billionaires [than the U.S.],” Dalio said. “I think capitalism and the development of the capital markets could, in a few years, be more embraced in China than they are in the U.S.”

For Dalio, the proof is in the remarkable development of China’s workforce and talent pool, and how economic growth has gradually translated into a better educated, more prosperous society. “Since I started going there, per-capita incomes have increased by 30 times,” he noted. “They’re putting out eight times as many computer engineers and STEM [science, technology, engineering, and mathematics] graduates. It’s a place where there is a vibrancy, a creativity, and a development of capital markets.”

That development is set to continue as the country’s capital markets continue to mature. Dalio projected that roughly 40% of new initial public offerings will soon be “raised by Chinese companies, on Chinese exchanges”—and that, in turn, will lead to more institutional investors around the world deciding to pour more of their money into Chinese markets. “The capital flow picture is more attractive,” Dalio said, adding that right now, “the world is underweight in Chinese assets.”

The flipside to that is an American economy increasingly marked by economic inequality, and an American society that has suffered for it, according to Dalio. “I grew up in an era—I was born in 1949—where equal opportunity and broad-based outcomes were the benefit,” he said. “I could go to a public school, my parents took care of me, and I came up in a world of equal opportunity.”

Opportunity is much less equitably distributed in the U.S. these days, Dalio noted. “If that’s the goal, and we’re trying to measure ourselves against that goal, I think there’s a real problem here,” he said. Dalio cited the state of public schools in his home state of Connecticut, where his own research found that one of the largest wealth gaps in the country had resulted in a self-perpetuating “cycle” in which the top 40% of households “spent five times as much money on their children’s education than those in the bottom 60%.”

So while capitalism has proven a historically adept method for the creation of wealth and prosperity, Dalio believes there are serious fixes in order for the American variety. “We want to keep capitalism—it’s an effective resource,” he said. “But if it isn’t totally effective, it has to be dealt with.”

And if those inequalities in our society aren’t addressed, Dalio warned of potentially dire repercussions to come. “That needs to be dealt with and figured out,” he stressed. “Otherwise, we’re going to have a civil war or revolution of some form.”

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