State capitalism, crony capitalism

May 11, 2010

When Ian Bremmer offers to tell you “what comes next, it is wise to pay attention:

I believe that things are going to get worse for free markets before they get better. China might be sitting on a bubble, but it’s not the one that James Chanos is pointing toward, one that will pop as soon as China’s real estate boom goes bust. Nor is it the scenario described by Gordon Chang in which the Chinese people rise up to challenge the Chinese government. I could mention the labor bubble (200 million Chinese men with no hope of finding spouses), the environmental bubble (no water, no arable land, no breathable air), or any of the dozens of other bubbles floating ominously across the Chinese landscape. All of them are serious. None are certain to threaten China’s state capitalist system anytime soon. I’d bet confidently on strong state-led Chinese growth over the next decade. Intensified national pride will only strengthen the system in the near term.

Second, the situation will get much worse for free markets because anemic growth and high unemployment in the developed world will feed a backlash against free market sentiment. We’re already seeing more support for protectionism and a tougher stance on immigration in both Europe and the United States. In America, Goldman Sachs is today’s scapegoat, but China is next in line, whether the subject is currency policy, cyber-security, trade imbalances, product safety, or something else.

All of that makes the recommendation that you and I share — strong government support of basic free market principles — one that looks increasingly vulnerable to populist politics within free market democracies. The problem is even larger in Europe and Japan than in America.


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Quoth Pethokoukis: “… Goldman Sachs is today’s scapegoat …”

Later in the same article:
“… the recommendation that you and I share — strong government support of basic free market principles “

Fascinating! So Goldman Sachs is just a scapegoat! I see.

And furthermore you recommend “strong government support of basic free market principles”.

There is an alarming contradiction between those two statements. So much so, indeed, that I doubt you really meant both of them.

If you were really desirous of free-market policies — and not just using them as a rhetorical device, as you do in this article — you would at least mention in passing that if Goldman Sachs — like the rest of the Wall Street gangsters – managed to achieve notoriety through its reckless speculation, it was only because Goldman Sachs (and the rest of the Wall Street gangsters) had previously persuaded the US congress and the SEC to remove all curbs on speculation.

When a participant in the market, in this case Goldman Sachs (plus the rest of the Wall Street gangsters), has the power to change the rules, then it is grossly inaccurate to speak of a free market. To back up this statement I cite the great German free-market economist Walter Eucken (1891-1950).

Eucken recommended a policy of strict division of labor between government and private business. The government regulates the economy, i.e. it makes rules about how private parties should behave on the market, but is not itself a market player. On the other hand market players are barred from trying to change the rules, unless it be through the ballot-box. Eucken’s thinking formed the basis of West Germany’s “socially aware market system”, which was the propitious framework in which the German economic miracle (1948-1973) took place.

Cite by Walter Eucken:

This [i.e. the strict division of labor explained above] is the only way in which we can accomplish the goal of enabling all citizens to control the economy through the price mechanism, instead of allowing a small minority to control it. The only economic system in which this is possible is that of complete[ly free] competition. IT CAN ONLY BE ACCOMPLISHED IF ALL MARKET PARTICIPANTS ARE PREVENTED FROM CHANGING THE RULES OF THE MARKET. (my stress)

Walter Eucken (1891-1950)

To her credit, Margaret Thatcher – poster girl of the free-market crowd — observed Eucken’s rule and forbade members of her government to have any contract with lobbyists of any sort. To expect such a policy of a US Republican would of course be an act of madness.

Posted by TequilaKid | Report as abusive

Dear editor friend,
Well and wish to hear the same from you.
You have already a email for my new theory on world economics.
About this article, you have given more spaces on world trade and commerce, currency values, European nations different approach to tackle their economic mess and economic uncertainty.
Which economic theory holds good on now a days.
Only Mixed economy,that is, capitalism,capital growth, more wealth generations, a correct corporate taxes on industrialists, business men, and from new enterprises for more capital, more revenue to government treasuries,government governance, national security and more save and investment on permanent returns by mutual funds, government bonds, post office savings-more popular in Asian nations had saved this world economic crisis.
Indians are prospering day by day on account of some free liberal economy, more IT industries, more outsourcing, more labor in selected fields, more rural and urban growth on many sects had made India and state capitalist country China are created a new milestones to entire world.
Whereas, in many western countries, America,England, Germany are mainly depending stock markets, artificial creation for demand in real sectors, no proper auditing mechanism, election gimmicks on social welfare, less productivity in major industries had contributed a strong negative results and they are facing the past mistakes with terrible financial problems, social inequalities,frustrations, tensions and conflicts, a sudden reemergences of single nation identities,some law and order problems, huge cry on migrants, who asked them to allow more migrants for manual labors, ego on super thinking on other nations are to be corrected at the earliest.
Previously Dollar was talk of the town.
Now Euro is talk of the town.
Now, clashes had happened to these super,world currencies.

Posted by mdspatsy | Report as abusive