31st Jan 2012

Now what about state capitalism?

In the issue from last week The Economist had a special on state capitalism which rise coincided with the crisis of Western liberal capitalism. There were very interesting statements I would like to point out, especially since - of course - the vast majority of the readers hearty believers in free market capitalism.

State capitalism’s most obvious achievements are in infrastructure. China has produced a large number of world infrastructure records, such as the largest hydroelectric project, the Three Gorges dam, and 6,400km of high-speed rail. It has also scattered new airports and railway terminals across the land. Even Russia’s more rough-and-ready railway system works pretty well, despite punishing weather.

This is very interesting, because when someone comes from Europe to North America this is exactly what seems to be lacking. Recently, i talked to a woman from Hong Kong and she said also she was surprised, how bad the infrastructure is in North America and Hong Kong was a lot more modern.

China’s mobile-phone network is the world’s largest, yet it suffers from fewer dropped calls or areas with no signal than America’s. China has the world’s biggest number of internet users, 420m, of whom 364m have broadband. It has also turned itself into a pioneer in some areas of green energy: it is the world’s largest exporter of solar panels, for example.

When I wondered about the poor quality of the US or Canadian mobile network, people always kept saying to me: “It’s such a large country!”. Are you sure thats why one has so often dropped calls? Apparently, if there is enough effort it can work, however why should a private company invest in areas where they don’t make enough ROI?

Of course we are all furious about the idea, that big state companies running our business. But are we maybe just biased? For example Andy Stern, a former boss of the powerful Service Employees International Union, argues that China’s economic model is superior to America’s and quotes Andy Grove, the founder of Intel:

Our fundamental economic belief …is that the free market is the best of all economic systems—the freer the better. Our generation has seen the decisive victory of free-market principles over planned economies. So we stick with this belief largely oblivious to emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better.

On the other hand, it is also very obvious where state capitalism will not succeed. One can hardly imagine these state backed companies being innovative, fast adapting and even if they don’t work, most likely the state will still back them up. Hmm, but wait didn’t just the latter happened after the financial crisis with the US car industry?
Still, we will agree that we need free markets for start ups and market disruptive innovation, however, what about state capitalistic companies that run common goods like healthcare, education, public transport, communication and so on, where state capitalism seems to do a better job at? This would in the end also help the innovative startups to be more competitive and successful on a global market.

  1. rottencapital posted this