Ideas ... State Capitalism
Arguments for and against

Bloomberg News Pankaj Mishra ... The One Capitalism That Dare Not Speak Its Name

COMMENTARY
Ever since the Soviet totalitarian communist economy imploded, the conventional wisdom has been that a money profit capitalist market economic system is the winner and the best economic system that can possibly be designed. I have thought for a very long time that this is patently absurd, and that money profit was only a good measure of performance for a very small amount of essential economic activity.

I studied enginnering at Cambridge before moving into economics and then into accounting and corporate management. Enginners ... and scientists ... know something about measurment and they have progressed enormously in the five decades since I completed my education! Compared to engineers and scientists the state of metrics in economics is a catastrophe and as a result economists recommend policy that makes little or no sense in the real world albeit fitting quite well into the stupid models that economists and financial traders often mistake for reality.

Wealth is not money, nor is it best measured in terms of money. Wealth has many manifestations that together give people quality of life, security and a future. It is convenient if there is a common unit of measure for all the various manifestations of wealth, and convenient also if there is a mechanism for the transfer of ealth in its various forms into money where money is a 'medium of exchange'

The conventional economist gets caught out in part because people are thought of as a liability rather than as an asset. Wile more people are sometimes associated with more aggregate demand and therefore more profit, it is less common for people to be thought of as a key agent in driving economic activity that produces the critical goods and services that the people of the word need. If you are the manager of a passenger airline, there is lost revenue and profit whenever the planes fly with empty seats. This is airline management 101. I would argue that an economy that has 50% of its educated youth unemployed is being managed in a stupid way with a valuable resource being wasted. The problem is that the existing money profit capitalist system and the financial edifice that has been created by its academic advisers and mathematical elite has no way to embrace anything except constructs that can get denominated in money profit and financial return.

If mathematics can create markets for esoteric money profit financial instruments, surely the market can do something to handle true value in society and the economy.

I argue that there are many needs in this world ... and many people who could engage in economic activity to satisfy these needs. The p[urpose of a worthwhile capital market is to mobilize resources so that the latent wealth in people can be used productively for the benefit of society in general and the individual, family and community more pareticularly.

The following essay is interesting ... but very conventional
Peter Burgess

The One Capitalism That Dare Not Speak Its Name

IMAGE Illustration by Connor Willumsen

On Dec. 26, 1992, a year after the Soviet Union imploded and lurched to embrace American-style capitalism, the Economist editorialized about a “universal agreement that there was no serious alternative to free-market capitalism as the way to organize economic life.”

Since its origins in mid-19th century Britain, the Economist has been the main propaganda organ for the neoclassical ideology of the free market (minimal government, invisible hand, etc.). It is the job of all ideologues to make their own preferred political and economic system seem natural and perfect. Still, someone in that 1992 editorial meeting ought to have said, “Not so fast.”

In a special report on state capitalism last January, the Economist admitted that “the era of free-market triumphalism has come to a juddering halt.” Liberal capitalism in the U.K. and the U.S. isn’t just convulsed with internal crises caused by unregulated financiers. It now faced “a potent alternative”: state capitalism, which has on its side one of the world’s biggest economies -- China -- and some of its most powerful companies --Russia’s Gazprom OAO, China Mobile Ltd. (CHL), DP World Ltd., and Emirates Airline.

Stunning Reversal

“Across much of the developing world,” Bloomberg Businessweek recently reported, “state capitalism -- in which the state either owns companies or plays a major role in supporting or directing them -- is replacing the free market.” From 2004 through 2009, the article points out, “120 state-owned companies made their debut on the Forbes list of the world’s largest corporations, while 250 private companies fell off it.”

What explains this stunning reversal for Anglo-American neoliberalism? Or is it that we have just emerged, blinking, from a long period of ideological delusion in which we were unable to see the world as it actually is?

The last 20 years of globalization spawned no greater article of faith than that selling state-owned corporations, inviting foreign investment, and deregulating prices and markets would encourage growth, and even introduce democracy.

There were early signs warning against a scenario in which nation-states paved the way for globalizers. Russia’s disastrous market reforms in the 1990s led to the plunder of national resources by an oligarchy and general impoverishment and mass trauma until an authoritarian figure -- Vladimir Putin -- stepped in to restore the state’s authority over strategic industries.

Introspection can’t be easy for the financial periodicals that were cheerleading Russia’s calamitously “free” market for much of the 1990s. Thus, the Economist’s abridged account of modern state capitalism: According to its editors, the sobering example of Russia’s post-1991 collapse was what apparently convinced Chinese leaders that they needed to blend state intervention with private enterprise. And the contemporary form of state capitalism was developed by Singapore under its founding father Lee Kuan Yew.

History! Actually, the idea that the state had a vital role to play in economic development and income redistribution has been dominant in most parts of the world for much of the last two centuries. President Franklin Roosevelt’s New Deal even introduced it into the political mainstream of the U.S., where it lingered for decades thereafter.

Rising Sun

Perhaps the most striking omission in recent accounts of state capitalism is how Japan charted its path from a developing to developed nation. The Japanese state was closely involved in building up domestic industries and finding overseas markets for them.

Japan’s state capitalism became a model for countries across East Asia, including Singapore (which, it should be said, is simply too small and exceptional as a financial center and trading port to hold historical lessons for larger countries).

So why are Japan’s successes and its regional variations in East Asia airbrushed out of the history of modern capitalism?

In the 1970s and 1980s, when the promise of prosperity first came to be linked with privatization, deregulation and minimal governments, or the so-called Washington Consensus, the World Bank and neoclassical economists such as Milton Friedman began to credit the free market for the East Asian “miracle.”

In this particular economic history, the allegedly free markets of Japan, South Korea, Taiwan and Singapore were counterposed to the stagnant, centrally planned “socialist” economies of India and China. (The discourse was extremely influential; you don’t have to look hard today to find free- market reformers in India and China invoking the example of East Asia).

Things were, of course, a lot more complicated. Japan had long followed its own model, in which government interacted closely with business in order to give the latter a competitive advantage in international markets.

In his 1982 book “MITI and the Japanese Miracle,” the scholar Chalmers Johnson, later known for his excoriation of U.S. foreign policy, demonstrated the central role that Japan’s Ministry of International Trade and Industry played in the country’s development and in giving Japanese firms a competitive advantage -- a role that began in the early 20th century.

Japan’s success had keen observers and imitators across Asia. The South Korean leader Park Chung Hee, who initiated South Korea into its rapid economic growth, once told the American journalist and scholar Frank Gibney that he had consciously modeled his country’s developmental capitalism on Japan’s example since the Meiji Restoration in the 19th century.

Model Capitalists

The Japanese, eager to export their model across East Asia, balked at their appropriation into the new narrative of neoliberal capitalism. “The East Asian Miracle,” a World Bank report in 1993 funded by the Japanese government, conceded the role of government intervention.

There were other conscientious objectors to the laissez- faire orthodoxy of the 1980s and 1990s. The idea that the state essentially prevents growth and general happiness was identified as a peculiarly Anglo-American prejudice by James Fallows in his book “Looking at the Sun: The Rise of the New East Asian Economic and Political System.” In “The Rise of the Rest,” the MIT economist Alice Amsden argued that latecomers to industrialization -- India, China, Turkey, Brazil -- had no choice but to intervene in local markets.

Such arguments still left out the geopolitical motivations and domestic considerations -- to be addressed in the next installment of this article -- behind the Japanese and now Chinese preference for state capitalism. Still, they do make you marvel at the insidious influence of laissez-faire ideology in the previous two decades -- how it created, among other things, a general amnesia about the original Asian centers of state capitalism.

(Pankaj Mishra, whose new book, “From the Ruins of Empire: The Revolt Against the West and the Remaking of Asia,” will be published in August, is a Bloomberg View columnist, based in London and Mashobra, India. The opinions expressed are his own.)

To contact the writer of this article: Pankaj Mishra at pmashobra@gmail.com.

To contact the editor responsible for this article: James Gibney at jgibney5@bloomberg.net.