Snarky Behavior

Welcome to the 21st Century…

January 15, 2008 · 1 Comment

… where State Capitalism reigns supreme.

Less than two decades after the collapse of the Soviet Union and the West’s gleeful jig-dancing on the grave of communism, state capitalism is suddenly threatening the autonomy of the global “free” market. Wall Street’s elite banks, longtime freedom fighters for deregulation and scorners of all government intervention in the marketplace, are now begging, cup in hand, for aid from a gallery of regimes that includes some of the most authoritarian and undemocratic governments on the planet.

In Monday’s Financial Times, Jeffrey Garten, a professor of international trade and finance at the Yale School of Management, is distraught.

In the late 18th century, capitalism was replacing feudalism. In the 20th century, freer markets won the day. Now the world is flirting with another big transformation in the philosophy and rules of global commerce. Unlike the changes of the past, this new trajectory does not represent progress.

But is this change in philosophy really a huge surprise?  That people– especially people in relatively homogenous societies– are willing to sacrifice freedom in return for economic progress? 

Strong institutions beget strong economies.  Asia has recognized that the liberalization of trade in Latin America has not delivered what it promised, mostly because Latin America lacked the instititonal capacity to support the burden of free markets. 

More people in China have been brought out of abject poverty in the last 20 years than in the history of the world… combined.  Clearly there is some merit to the economic path China has chosen for itself.

Is state capitalism sustainable?  Probably not.  Eventually, a middle class wants political representation.  Eventually, hierarchical systems erode due to fraud, corruption and beauracracy. 

But is state capitalism a great means to play catch-up with the first world?  It sure looks like it.  Especially when American industry out-leverages its own markets with complicated debt instruments.

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1 response so far ↓

  • Coach K // January 16, 2008 at 12:22 am | Reply

    This is an old story, most likely not even Friedman (who predicted this long ago) could foresee how the back and forth trend could last so long (he was confident the free-market could dominate). In any case, state capitalism is not sustainable in the long term. Wealth and welfare will boost rights awareness and demand for everything connected; leading to an inevitable end of any state planned economy against a freer markets.

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