State Capitalism

choi

The Jan 21, 2012 issue of Economist had a cover story: The Rise of State Capitalism; The emerging world's new model.

Please read the text of only those with URL--namely (3), (4) and (5).

(1) The Rise of State Capitalism; The spread of a new sort of business in the emerging world will cause increasing problems
(preview)

(2) The Visible Hand. The crisis of Western liberal capitalism has coincided with the rise of a powerful new form of state capitalism in emerging markets, says Adrian Wooldridge.

(a) Paragraph 1: "BEATRICE WEBB grew up as a fervent believer in free markets and limited government. Her father was a self-made railway tycoon and her mother an ardent free-trader. One of her family’s closest friends was Herbert Spencer, the leading philosopher of Victorian liberalism. Spencer took a shine to young Beatrice and treated her to lectures on the magic of the market, the survival of the fittest and the evils of the state. But as Beatrice grew up she began to have doubts. Why should the state not intervene in the market to order children out of chimneys and into schools, or to provide sustenance for the hungry and unemployed or to rescue failing industries? In due course Beatrice became one of the leading architects of the welfare state—and a leading apologist for Soviet communism.

(b) Note: Beatrice Webb
http://en.wikipedia.org/wiki/Beatrice_Webb
(1858-1943; coined the term collective bargaining; nee Beatrice Potter, daughter of Richard Potter and Laurencina Heyworth)

(3) Something Old, Something New; A brief history of state capitalism
http://www.economist.com/node/21542922

The first two paragraphs:

"IN SEPTEMBER 1789 George Washington appointed Alexander Hamilton as America’s first ever treasury secretary. Two years later Hamilton presented Congress with a “Report on Manufactures”, his plan to get the young country’s economy going and provide the underpinnings for its hard-fought independence. Hamilton had no time for Adam Smith’s ideas about the hidden hand. America needed to protect its infant industries with tariffs if it wanted to see them grow up.

"State capitalism has been around for almost as long as capitalism itself. Anglo-Saxons like to think of themselves as the perennial defenders of free-market orthodoxy against continental European and Asian heresy. In reality every rising power has relied on the state to kickstart growth or at least to protect fragile industries. Even Britain, the crucible of free-trade thinking, created a giant national champion in the form of the East India Company.

Note: Électricité de France
http://en.wikipedia.org/wiki/Électricité_de_France

(4) A choice of models |  Theme and Variations; State capitalism is not all the same.
http://www.economist.com/node/21542924
(versions of state capitalism: China, Russuia, Middle East and Brazil)

(a) Excerpt in the window of print: These varieties of state capitalism all have one thing in common: politicians have far more power than they do under liberal capitalism

(b) Quote:

"IT IS EASY for a casual visitor to China to be fooled into thinking that he is in a normal capitalist country. * * * But the form of capitalism on display is highly idiosyncratic. Company bosses are routinely moved to rival companies without any explanation. Company headquarters have space set aside for representatives of the armed forces. And the deeper you look, the queerer things become.

"What might be called 'the party state' exercises a degree of control over the economy that is unparalleled in the rest of the state-capitalist world. * * * The party state exercises power through two institutions: the State-Owned Assets Supervision and Administration Commission (SASAC) and the Communist Party’s Organisation Department.


(5) Pros and cons  |  Mixed Bag; SOEs are good at infrastructure projects, not so good at innovation
http://www.economist.com/node/21542929

(a) Excerpt in the window of print: It is quite possible for state capitalism to work well in some areas (eg, infrastructure) and badly in others (eg, consumer goods)

(b) Contrast China's to Russia's rails:

In China: "Even more disconcerting for a Westerner is the feeling that he is being left in the dust. This is no prestige project for the Chinese elite. The queue to get on the train is more like a scrum. The smell of last night’s alcohol hangs in the air. For many Chinese people high-speed trains are becoming a normal convenience.

"A visit to the headquarters of Russian Railways can feel a bit like a voyage back in time. The guards wear the peaked hats and gruff manners of the Soviet era. * * * Vladimir Yakunin, the company’s boss, started his career with the KGB. He concedes that his company is a giant of an organisation: it has 1.2m employees, 20,000 stations, 86,000km of track, a network of schools and health clinics and even an equestrian school. He also agrees that the state’s influence is all-pervasive. Three white telephones next to his desk provide him with direct access to the Kremlin (he says he has a separate line to his old friend, Mr Putin). He cannot even sell one of the chairs that surround his vast table without the government’s permission. * * * He also points out that some of the oddities of his company, such as its schools and clinics, have been around for a century and derive from the difficulties of running a railway in the middle of nowhere. There is no such thing as pure capitalism or pure socialism, he argues; only more or less sensible solutions to practical problems.

(c) Note: For peaked hat, see peaked cap
http://en.wikipedia.org/wiki/Peaked_cap
(The cap has a crown, a band, and a peak (British English) or visor (American English))


(6) Going abroad | The World in Their Hands; State capitalism looks outward as well as inward.

Quote:

"IT IS FITTING that China's national symbol should be an animal that spends 16 hours a day eating bamboo. China is an energy panda that is obsessed by the question of where its next mouthful of bamboo will come from. The Chinese elite sees the world in terms of brutal competition for limited resources. * * * China's obsession with going out in search of raw materials has been growing for almost two decades.

"China and Russia have found it easier to get on with each other as state capitalists than they ever did as communists. China has also strengthened its links with the Middle East. * * * This 'axis of state capitalism' is gaining an ideological edge as the emerging world goes from strength to strength, America pulls in its horns, Europe implodes and the G20 takes over from the G7.

"state capitalism is also finding it hard to evangelise. Indeed, many state capitalists are in denial about it. Mr Putin pooh-poohs the whole idea. 'If we concentrate on certain resources, we do it only to support the industry until the companies stand firmly,' he insists. The Chinese argue that their free-trading credentials are as good as those of any other WTO members.

"State capitalism may not turn into a popular movement, in the way that communism and socialism did, but it nevertheless confronts Western policymakers with some difficult questions.


(7) The long view |  And the Winner Is * * *; For all its success, state capitalism has fatal flaws.

"state capitalism suffers from the misfortune that it has taken root in countries with problematic states.China combines admirable mandarin traditions with a culture of guanxi (connections) and corruption. Russia has the nepotism and corruption without the mandarin traditions. Brazil puts all the cards in the hands of insiders from both capital and labour. Transparency International, a campaigning group, ranks Brazil 73rd in its corruption index for 2011, with China 75th and Russia an appalling 143rd. State capitalism often reinforces corruption because it increases the size and range of prizes for the victors. The ruling cliques have not only the government apparatus but also huge corporate resources at their disposal.

"And it removeds an essential layer of scrutiny from central government. Robert Lowe, one of the great Victorian architects of the modern business corporation, described businesses as 'little republics' that operate as checks and balances on the power of the big republic of government. When the little republics and the big republic are one and the same, liberty is fatally weakened.

Note: Robert Lowe
http://en.wikipedia.org/wiki/Robert_Lowe
(1811-1892)