This week's Economist has a lot to say about state capitalism. It made the cover of the magazine, and they have a big report on it, as well an overview here.
I'm not sure what to make of it all. On the one hand, they note that the state has played a role in the economy before:
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.
On the other hand, they talk about how this round of state capitalism is different than past versions:
State-directed capitalism is not a new idea: witness the East India Company. But as our special report this week points out, it has undergone a dramatic revival. In the 1990s most state-owned companies were little more than government departments in emerging markets; the assumption was that, as the economy matured, the government would close or privatise them. Yet they show no signs of relinquishing the commanding heights, whether in major industries (the world’s ten biggest oil-and-gas firms, measured by reserves, are all state-owned) or major markets (state-backed companies account for 80% of the value of China’s stockmarket and 62% of Russia’s). And they are on the offensive. Look at almost any new industry and a giant is emerging: China Mobile, for example, has 600m customers. State-backed firms accounted for a third of the emerging world’s foreign direct investment in 2003-10.
What does the future hold for state capitalism? They point out that, in the past, "countries have, over time, invariably found that the system has limits."
It's not clear to me how to make a useful comparison between the state intervention in the economy going on today with the state intervention that went on in the past. The role of the state does seem to rise and fall a bit over the years. But how big are the changes? And which direction are we going now?
And, of course, for the purposes of this blog, the impact on trade is important:
Another concern is the impact of the model on the global trading system—which, at a time when the likely Republican nominee for president wants to declare China a currency manipulator on his first day of office, is already at risk. Ensuring that trade is fair is harder when some companies enjoy the support, overt or covert, of a national government. Western politicians are beginning to lose patience with state-capitalist powers that rig the system in favour of their own companies.
Do we need new rules in trade agreements to address specific problems related to state capitalism? This is being discussed in the TPP, but clearly China is the main concern here. Will these issues be brought into the WTO?
