In containing North Korea, Japan and South Korea should be our allies, not dependents.
And while America cannot abdicate her responsibility and role in this crisis, we should be asking ourselves: Why is this our crisis in 2013?
President Eisenhower ended the Korean War 60 years ago. The Chinese armies in Korea went home. Twenty years ago, the Soviet Union collapsed, Russia abandoned communism and ceased to arm the North, and Mao’s China gave up world revolution for state capitalism.Sponsored Ads
Epochal events. Yet U.S. troops still sit on the DMZ, just as their grandfathers did when this writer was still in high school.
Why? North Korea represents no threat to us, and South Korea is not the ruined ravaged land of 1953. It has twice the population of the North, an economy 40 times the size of the North’s, and access to the most modern weapons in America’s arsenal.
China’s government-controlled enterprises are targeting the U.S. market and pose a threat to U.S. companies, free markets, and fair trade, according to a forthcoming report by a congressional Chinese commission.
“The Chinese system of state capitalism or ‘capitalism with Chinese characteristics’ has blocked many of the potential benefits of a free market, not only in China, but among China’s trading partners,” concluded a draft report by the U.S.-China Economic and Security Review Commission.
Once the world admitted China to the World Trade Organization in 2001, we welcomed the country into our free-markets. We trusted the global economy would evolve toward free and fair trade. We then set our policies on cruise control, assuming the world would follow the U.S. model.
Instead, China got a hand on the steering wheel: It turned the rules of global business in its favor. We woke up to find a hijacking of our free-market system. China was manipulating its currency, subsidizing its firms, undermining nascent U.S. firms, erecting trade barriers, and stealing intellectual property. China was using its firms as instruments of state capitalism—it even coordinated them to monopolize critical resources such as steel and rare earths.
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.
“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?
The era of freedom is coming to an end. The rise of state capitalism – fascism – will be catastrophic. Yes, free-market capitalism has a problem, but state capitalism is much, much worse. We just haven’t given state capitalism enough time to show its hand.
Under fascism people own the property, but the state exerts heavy control over the buying and selling of goods and property. Generally, this system facilitates the spread of corruption and bad decisions throughout all aspects of the economy until it crashes. And it will crash much faster than a free-market economy. In the case of Japan, it has managed to avoid a large crash by borrowing massive amounts of money but can’t really grow very fast going forward. In the case of China, massive corruption will likely bring on a large crash.
What’s the problem with free-market capitalism?
Too much government interference (Control). Crashes are suppressed so corruption and bad decisions can propagate. The solution is to just let crashes happen. Get out of the way and do nothing.
In the end, state capitalism will mean the loss of freedom, more frequent crashes and very slow growth going forward in time.
Dr. Doom Nouriel Roubini is once again warning of a perfect global storm in 2013.
In his latest Project Syndicate column Roubini warns of dark “financial and economic clouds” from Europe, the U.S., China and the Middle East.
First, he says the eurozone crisis is worsening, the fiscal and sovereign debt crisis and the problems in its banking sector are worsening. In fact he says, eurozone might need a bailout of its banks but also a sovereign bailout. “As a result, disorderly breakup of the eurozone remains possible.”
Then, he warns that the U.S. economy is also struggling with weaker growth and job creation, the risk of a drag from the fiscal cliff and political impasse in Washington over fiscal adjustment irrespective of the outcome of the election.
“A Global Perfect Storm” by Nouriel Roubini | Project Syndicate
In the east, China, its growth model unsustainable, could be underwater by 2013, as its investment bust continues and reforms intended to boost consumption are too little too late. A new Chinese leadership must accelerate structural reforms to reduce national savings and increase consumption’s share of GDP; but divisions within the leadership about the pace of reform, together with the likelihood of a bumpy political transition, suggest that reform will occur at a pace that simply is not fast enough.
The economic slowdown in the US, the eurozone, and China already implies a massive drag on growth in other emerging markets, owing to their trade and financial links with the US and the European Union (that is, no “decoupling” has occurred). At the same time, the lack of structural reforms in emerging markets, together with their move towards greater state capitalism, is hampering growth and will reduce their resiliency.
Finally, long-simmering tensions in the Middle East between Israel and the US on one side and Iran on the other on the issue of nuclear proliferation could reach a boil by 2013. The current negotiations are likely to fail, and even tightened sanctions may not stop Iran from trying to build nuclear weapons. With the US and Israel unwilling to accept containment of a nuclear Iran by deterrence, a military confrontation in 2013 would lead to a massive oil price spike and global recession.
Yet China’s reckoning is coming in slow motion, and the world is only now noticing. The hundreds of billions of dollars of stimulus China tossed at its economy sowed the seeds of trouble. The money was spent haphazardly and inefficiently, creating fresh asset bubbles, inflation and a legacy of bad debt at China’s biggest banks. Fresh efforts to boost demand will do more harm than good as Europe’s woes close in on Asia.
State capitalism is not immune to the laws of economic gravity. During times of economic growth and stability, everybody thinks that only good decisions are made. In reality, bad decisions are made too, but these are covered up by the economic growth. Prolonging the good times means that more bad decisions have time to build up. Eventually, the economy must come crashing down due to the accumulation of bad decisions. The longer one waits then the worse the eventual crash will be.
A report out of the World Bank on Monday called for China to scale back on the dominance of state-owned companies and complete the transition to an open market economy, or face potential collapse. The report apparently has the endorsement of Beijing’s most powerful leaders. But can it really be as simple as that? And what are the implications for South Africa, which has only recently begun to emulate the Chinese model? By KEVIN BLOOM.
Slightly over a month ago, The Economist ran a cover story that examined how and why state-backed companies – which account for 80% of the value of China’s stockmarket – are on the offensive. The feature, under the header The rise of state capitalism, noted that as recently as the 1990s most state-owned companies were “little more than government departments in emerging markets,” and that the strategy back then was to either close or privatise them as the economies in these markets matured.
In the run-up to Chinese Vice President Xi Jinping’s visit to the United States this week, Cui Tiankai, the vice foreign minister, said it all: China and the United States suffer a “trust deficit.” That is true; myriad factors — including different political systems, a rapidly growing list of issues with which the two countries must contend, and overblown expectations — have contributed to the problem. Cui’s prescription was that both sides “must give full attention” to “nurturing and deepening mutual trust.” What he left out, however, was precisely what nurturing and deepening might entail.
Is it even possible to fix the trust deficit? China has moved from a communist governing model to a state capitalism model – fascist model – that is heavily mercantilist. The intensions of its military growth are unclear. Well, at least they are unclear to the current administration. The regime puts itself above the interests of the Chinese people. Compare that to the US’s democratic governing system and more free-market capitalist system. Our military is much more open as well. It is clear that China and the US are starting out with such vast differences that they probably can’t be bridged unless China changes to a democratic system. Expect conflict in the future because of these vast differences.
It is an astonishing yet scarcely acknowledged fact that on no fewer than 14 out of 15 issues relating to property rights and governance, the United States now fares markedly worse than Hong Kong. Even mainland China does better in two areas. Indeed, the United States makes the global top 20 in only one: investor protection, where it is tied for fifth. On every other count, its reputation is shockingly bad.
The implications are clear. If we are to understand the changing relationship between the state and the market in the world today, we must eschew crude generalizations about “state capitalism,” a term that is really not much more valuable today than the Marxist-Leninist term “state monopoly capitalism” was back when Rudolf Hilferding coined it a century ago.
No one seriously denies that the state has a role to play in economic life. The question is what that role should be and how it can be performed in ways that simultaneously enhance economic efficiency and minimize the kind of rent-seeking behavior — “corruption” in all its shapes and forms — that tends to arise wherever the public and private sectors meet.
We are all state capitalists now — and we have been for over a century, ever since the modern state began its steady growth in the late 19th century, when Adolph Wagner first formulated his law of rising state expenditures.
It wasn’t bad enough that the vast majority of economists completely and totally missed the global financial crisis starting in 2007-2008. Then they prescribed precisely the wrong medicine to fix the problem – throw money at it. Where has that gotten us into the 5th year of the crisis? Apparently, they didn’t learn anything from Japan. Now economists are coming to the consensus that state capitalism is the answer.
State capitalism is just a new term for fascism. Fascism is the illusion of private ownership with heavy state control over the use and disposal of property. The suggestion that state capitalism is the answer shows how much economists really haven’t learned. Perhaps the coming crash of China will provide a lesson.
More state control over the economy increases the period of stability at the expense of crash size. More stability means much bigger crashes when they finally happen. So you lurch from crisis to crisis. Economists completely ignore the buildup of corruption and bad decisions during the times of stability.
I like the suggestion by Nissam Taleb, author of the Black Swan: Put the economists in charge who actually saw the financial crisis ahead of time.
Ferguson said he was surprised by how many economists attending last week’s World Economic Forum meeting in Davos, Switzerland, bought the argument that we were witnessing the emergence of the Beijing consensus, in which state capitalism is the answer.