A further article in the same issue but not included in the "special report" series, is also adorned with the same image of Lenin that appears on the cover, Emerging-market multinationals: The rise of state capitalism.
Does The Economist think that Lenin promoted "state capitalism"? Or only Lenin with a cigar wrapped with a dollar sign?
This series has quite a bit of interesting business reporting about state owned firms that are playing a large role in the world economy today. Unfortunately, that reporting is packaged with a clumsy ideological construct about "state capitalism", complete with one of the dumbest propaganda phrases I've encountered lately: the Axis of State Capitalism. You have to work to come up with a groaner like that. One that is so bad that it's not even in competition for a so-bad-it's-good status.
The Economist suggests that shock-therapy privatization of state-owned enterprises in Russia in the 1990s may have had some of those unanticiated consequences conservatives are always warning about when it comes to any public program that might benefit ordinary people:
State capitalism’s supporters argue that it can provide stability as well as growth. Russia's wild privatisation under Boris Yeltsin in the 1990s alarmed many emerging countries and encouraged the view that governments can mitigate the strains that capitalism and globalisation cause by providing not just the hard infrastructure of roads and bridges but also the soft infrastructure of flagship corporations.As I noted in the first post in this series, The Economist's definition of "state capitalism" is vague, and basically seems to refer to any company substantially backed by its home government in ways that are not typical in the US or Britain.
Here the editors state their ideological preference clearly:
Both for their own sake, and in the interests of world trade, the practitioners of state capitalism need to start unwinding their huge holdings in favoured companies and handing them over to private investors.The idea of a state-owned company or public organization of any kind producing more optimal results than a private corporation just doesn't fit into the model of neoliberalism. And if it is working better, there must be something wrong, even if it's only opportunity costs:
Yet a close look at the model shows its weaknesses. When the government favours one lot of companies, the others suffer. In 2009 China Mobile and another state giant, China National Petroleum Corporation, made profits of $33 billion — more than China's 500 most profitable private companies combined. State giants soak up capital and talent that might have been used better by private companies. Studies show that state companies use capital less efficiently than private ones, and grow more slowly. In many countries the coddled state giants are pouring money into fancy towers at a time when entrepreneurs are struggling to raise capital. [my emphasis]Gosh,a giant oil company makes huge profits. That could never happen in the Free Market!
Now, China Mobile might be the least efficient organization on the whole planet for all I know. But the fact that it in 2009 it made "more than China's 500 most profitable private companies combined" in itself doesn't really tell us anything about how efficient or effective it is, or what kind of overall results the arrangement favors. In fact, this article notes that "the world's ten biggest oil-and-gas firms, measured by reserves, are all state-owned." And "fancy towers" have also been known to spring up, along with with huge numbers of apartment and condo developments, in real estate booms in good old Free Market countries like the US and Britain.
Also, the way they make the argument there, the supposed costs to those struggling entrepreneurs are speculative opportunity costs. Only a real comparison to a similar economy with different ownership patters of large companies could provide some reasonable measure of what those are.
This summary article doesn't offer much beyond dogmatic statements of neoliberal truisms:
Rising powers have always used the state to kick-start growth: think of Japan and South Korea in the 1950s or Germany in the 1870s or even the United States after the war of independence. But these countries have, over time, invariably found that the system has limits. The Chinese of all people should understand that the best way to learn from history is to look at its long sweep.If you scratch even a little bit underneath the Grand History declaration there, you're likely to find yourself asking, "what the ...?" Gosh, I never realized that the United States in the 1780s and 1790s was setting up state-owned enterprises all over the place. Does this mean that our sacred Founding Fathers were, (gulp!) socialists?!? Don't tell Newt Gingrich or Papa Doc Paul. It's likely to cause aneurisms or something.
But then if Communist China is state capitalist because they have state owned enterprise, then what's a socialist? Neoliberalism can be quite a head trip.
Tags: state capitalism