"State capitalism" (4 of 8): Four types, forced uncomfortably together

A choice of models: Theme and variations, another entry in the special report on "state capitalism" in The Economist's 01/21/2012 edition, attempts to make some distinctions among the various types of this economic phenomenon.

This one is quite interesting, not so much for the conclusions it draws, but because it avoids drawing them from the situations it reports. It basically distinguishes among four models: China, Russia, Middle Eastern states and Brazil. The Middle Eastern version they describe under the rubric of "petrostate capitalism". The popular impression of petrostates in the US is that they are notoriously corrupt and have warped economic development, assumption not entirely divorced from reality. But the article includes in that category Dubai, of which they observe, "because they never had much oil to begin with. It now accounts for under 5% of the emirate's GDP." How is a country with oil making up 5% of the GDP a "petrostate"? They seem to be using "petrostate capitalism" more-or-less to refer to the Middle East generally.

These pieces clearly have a strong ideological twist. But in some ways, that makes them all the more provocative. Their nervousness about Brazil is reflected in this summary, under which they include the other three models, as well: "These varieties of state capitalism all have one thing in common: politicians have far more power than they do under liberal capitalism."

But over four years into the current depression, it doesn't seem so heretical to point out the obvious question that comment raises but stops short of posing directly: if a government is genuinely politically democratic, is it really a bad thing that it would have more influence over business and the economy than the US or Britain? A government focused on seriously defending the public interest in the US would have taken a very different approach to the housing bubble that led up to the financial collapse of 2008 than Uncle Alan Greenspan and the Cheney-Bush Administration did.

I'm especially struck by their description of China:

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 has cells in most big companies in the private as well as the state-owned sector complete with their own offices and files on employees. It controls the appointment of captains of industry and, in the SOEs [state owned enterprises], even corporate dogsbodies. It holds meetings that shadow formal board meetings and often trump their decisions, particularly on staff appointments. It often gets involved in business planning and works with management to control workers’ pay.

The party state exercises power through two institutions: the State-Owned Assets Supervision and Administration Commission (SASAC) and the Communist Party’s Organisation Department. SASAC, which holds shares in the biggest companies, is the world’s largest controlling shareholder and the state-capitalist institution par excellence. It has been spearheading the policy of creating national champions by consolidating and pruning its portfolio: the number of companies under its supervision has declined from 198 in 2003 to 121 today. It has also been implementing the party’s policy of creating a harmonious society by regulating pay. In 2009 the average SOE boss earned $88,000 and the highest-paid, the chairman of China Mobile, $182,000. High pay in SOEs has been a big source of disharmony.

One of the factors is does not mention but is a major aspect of China's situation is that it doesn't have much of what is known as a "social safety net" in major Western countries. That's one of the main claims of neoliberalism, that all countries need to compete in minimizing wages and workers' rights. But they may have found it too tricky to wedge a discussion of that in the context of China into their clunky "state capitalist" ideological system.

But what is most striking about this is that even though they describe here an approach to the organization of the state and economic life that is based on China's Communist ideology, they just blip right over the obvious question of how it is that a Communist country can be a "state capitalist" one. That would have required coming up with bridges between the gaps in their "state capitalist" ideological construct that would have been difficult and embarrassing. Other articles in the series to be examined in later posts give more of an idea of why they try to avoid this obvious conceptual dilemma.

Tags: state capitalism