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China's Gilded Age

NEW YORK (TheStreet) -- There's a trend that ties together the earnings at Caterpillar (CAT) and Microsoft's (MSFT) possible participation in a Dell (DELL) buyout.

You can't trust China.

I'm not talking about the government. I'm talking about business. Although many people will still insist China is a "communist" country, I'm pretty sure that "If Marx were living today, he'd be rolling around in his grave," as Randy Newman sang.

China today is a brutally capitalist economy with a kleptocratic upper crust. Before you get into high dudgeon over that, consider America under Ulysses S. Grant.

Just as Civil War veterans were raking it in with both hands during the 1870s, so descendents of China's generals are doing the same today. Just as America had yet to see the wisdom of following copyrights in the 1870s, so it is with China today. Just as America's boom of the 1870s masked the brutalities of industrialization, and genocide against native people in the West, so it is with China today.

What changed things here wasn't just the government -- the reforms of the 1880s were very superficial. What changed things was the cold hand of organized capitalism, with John D. Rockefeller rationalizing the oil industry and J.P. Morgan rationalizing everything else. It was the "trusts" that were the gateway to market reform, because the trusts did indeed reform the market, in the name of efficient allocation of capital.

Jay Gould, robber baron

It wasn't until the 1890s, with the trusts acting as de facto governments, while controlling what went on below them, that the government was able to gain a regulatory foothold. You can argue that the regulations of the Progressive Era were mainly done on behalf of capital, but they did happen.

Over a long struggle with Wall Street, America's markets became increasingly transparent through most of the 20th century, so that companies saw listing on our stock exchanges as a "gold standard," as something worth doing, because it meant they could be trusted.

But until a company, or an economy, is willing to be transparent, to be open and honest, accepting it in your market is more like accepting pythons in the Everglades.

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