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Statism has crushed market capitalism


feargach

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Dec 11, 2006
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4,995
Not really up for discussion or debate as a proposal. It's just a big clunking fist of obvious fact.

Back after the fall of Russian communism, there was this big new orthodoxy, sometimes called the end of history hypothesis. The idea was that Washington consensus capitalism was proven to be the sole viable economic model. All alternative models were considered doomed to failure.

The only viable way to do things, the viewpoint went, is for the state to withdraw from being an active economic participant, and to leave decisions as to the disposition of resources to the private sector. The state's only valid role in the economy was considered to be the writing of regulations to apply fairly to all, the enforcement of those regulations, the provision of infrastructure, and the provision of a modest social safety net for the very poor.

Oddly, that consensus remains the dominant viewpoint, despite the fact that it is now shown to be totally untrue.

A great portion of economic growth on planet Earth is concentrated in just three states: China, India and Brazil. None of them operate the version of market-based, laissez-faire economics that dominates the EU and the USA.

They are interventionist, statist economies. And they are trouncing, really walloping the declining western nations which allow the large financial and industrial economies to do as they please.

That is the core of the issue. In the EU and the USA, the politicians wring their hands impotently, hoping and wishing that the banks would choose to start lending again, and that the big corporations start investing their cash stockpiles. In China, the Party instructs the banks exactly how much and to whom to lend at monthly meetings, and any banker who demurs in the slightest has to clear his desk.

In India, prices of a vast array of goods are set by the government, not by private entities. In Brazil, thousands of restrictions that are unheard of in the EU or the USA tie the hands of big business.

The result of this statism? Big, crushing economic victory over the west. Without these three nations, the world would have been in constant recession (or extremely close to it) for most of the last decade.
 

Shqiptar

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I think it's a little early to write off the West just yet. What with heavy state interventionism and God-awful demographics, don't be surprised to see China turn into what Japan is now - except far far worse.

The West is in a period of retrenchment - there's no doubt about that. That won't last forever as budgets are balanced and debt is paid down, things will pick up again. We just need to realise that regulation-lite has been a disaster.

Making the private sector pick up the tab for its own stupidity should - along with better regulation - avoid the Crunch from happening again.
 

Mossy Heneberry

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And let's not forget what interventionist statists did to the economy of this country.

Yep, statism sure is the way to go!

BTW, what are the poverty levels like in Brazil and India, are they comparable to our own?

Making the private sector pick up the tab for its own stupidity should - along with better regulation - avoid the Crunch from happening again.
While we should allow capitalism to work we still have to balance a budget and close a deficit that was created by an intervening state.
 
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theloner

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So when's your deadline? :p
 
D

Deleted member 17573

In the West, Corporatism has taken over, the Corporation has replaced the State - and we didn't even see it happen. Good OP!
 

Roberto Jordan

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There is a fundamental flaw in logic of the OP. the 3 BRIC nations mentioned have made their economic progress as a result of outsourcing by western corporations and western import Tariffs making import if cheap foreign goods possible . Therefore while these are certainly more centrally controlled nations and all three operate to keep their own domestic economies as closed as possible their economic development is entirely predicated on free market economics in the west.
 

henryhill

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There has never been such thing as market capitalism without state interference. On its own, the market is unstable and needs to be protected - as seen by the recent bailouts.
 

cottage_economist

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Good point Feargach, there doesn't seem to be anything like the triumphalism accompanying the fall of capitalism as there was when communism collapsed, or Soviet communism at any rate.

It's interesting that when the chips were down for the UK in 1940, when national survival was at stake, even an arch Tory like Churchill ditched any notions of free market economy and put the whole lot on a command basis. As an example Spitfires, originally made by Supermarine, were also made by their rivals Glosters. There was no nonsense about market forces or business confidentiality, the planes were needed and the most suitable firms were told to make them. The Yanks did much the same, Jeep production was taken from the small company that invented them and put into the hands of Ford and Willys who had the production ability to meet the orders.

The events of the last few years have really picked holes in the fabric of capitalism, and I do hope that before long something better will evolve.
 

Mossy Heneberry

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Good point Feargach, there doesn't seem to be anything like the triumphalism accompanying the fall of capitalism as there was when communism collapsed, or Soviet communism at any rate.

It's interesting that when the chips were down for the UK in 1940, when national survival was at stake, even an arch Tory like Churchill ditched any notions of free market economy and put the whole lot on a command basis. As an example Spitfires, originally made by Supermarine, were also made by their rivals Glosters. There was no nonsense about market forces or business confidentiality, the planes were needed and the most suitable firms were told to make them. The Yanks did much the same, Jeep production was taken from the small company that invented them and put into the hands of Ford and Willys who had the production ability to meet the orders.

The events of the last few years have really picked holes in the fabric of capitalism, and I do hope that before long something better will evolve.
Capitalism can't fall per se. Capitalism is as natural to the human condition as eating and sleeping. Capitalism along with globalisation has been around with us since we've been put on this planet.
 

Analyzer

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It is state sanctioned capitalism. Highly centralized.
 

eoghanacht

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The race is not run yet, hardly fair to call a winner yet.
 

stopdoingstuff

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Good lord. Those allegedly statist economies only work precisely because they got the state out of the business of running the economies. The richest provinces in China are the SEZs and export oriented areas of Zhejiang, Jiangsu and Guangdong. The special economic zones were set up precisely to create areas where the state had less of a role to play in the economy, the primary drivers of export growth in Zhejiang have been small and medium sized private firms, and none of it would have worked unless there was trade and investment liberalization with the rest of the world.
This worked remarkably well for a few decades until suddenly something utterly predictable happened- the Chinese began to run out of cheap labour and the rest of the world began to both buy Chinese products at an a much slower pace than before while selling more back to China. A decade ago the Chinese trade surplus was over 12% of GDP, and now it is just over 2% of GDP.
So what made up the shortfall in growth. Was it more consumption? Just a little. Was it innovation? Not even a little. So what was it? Yeah, that's right- it was state led investment, which is a fancy way of saying a property bubble that makes the US bubble look like a short-lived mania, massive wasteful infrastructure spending that does not even cover its own cost of capital, state owned enterprises producing for the sake of producing, and all financed with a truly monstrous creation of credit.
But now reality is very obviously beginning to hit home:
Growing debt burden in mainland provinces causes concern | South China Morning Post
The debt burden of some provinces on the mainland is becoming "worrisome" as they face the double whammy of slowing fiscal revenue and tightening bank loans, warn credit rating agencies........................................Th e debt-to-fiscal-revenue ratio for the central province of Hubei, for example, reached 181 per cent in 2010, according to Fitch. That is on par with countries known to have high debt levels, such as Britain and France. China's overall debt-to-revenue ratio is 165 per cent.
Why China
Indeed, China claims its debt-to-GDP ratio—the standard measure of sustainability—was a healthy 17 percent at the end of last year. Yet Beijing-based Dragonomics, a well-respected consultancy, put China’s ratio at 89 percent—about the same as America’s. Worse still, a growing number of analysts think the Chinese ratio was really 160 percent. At that astronomical level, China looks worse than Greece.
And then there are the Banks.
Are Chinese Banks Hiding "The Mother of All Debt Bombs"? - The Diplomat

BBC News - China banks under pressure as loans turn sour
What has all that credit bought?
[video=youtube;0brcZTVde-I]http://www.youtube.com/watch?v=0brcZTVde-I[/video]

And the emergence of the shadow banking system, the Local Government Finance Vehicles and Wealth Management Products, which between them hide trillions in off-balance sheet liabilities.
Everything You Need To Know About China's Delicate Shadow Banking System - Business Insider
Here's All You Need To Know About China's Fragile $2.2 Trillion Shadow Banking System
Matthew Boesler | Jul. 17, 2012, 7:39 PM | 16,135 | 7



It is clear that the Chinese economy is slowing, and some think the risks of a hard landing are rising substantially.
If economic growth in China continues to slow, rising and sudden defaults on loans made in the country's shadow banking system could threaten to bring down China's traditional banking sector and throw the world's third-largest economy in jeopardy, according to Bank of America Merrill Lynch China Strategist David Cui.
The hodgepodge web of non-banks that comprise the shadow nexus in China includes pawn shops, underground banks, various wealth management products, trust companies, and guarantors – many of which don't take deposits to insure against risky lending activities and operate completely beyond the eye of regulators and authorities.
What follows are highlights from Cui's comprehensive report examining China's shadow banking system.
Why the shadow banking system in China is so important
The sheer size of the system is overwhelming. At an estimated 14.5 trillion renminbi ($2.2 trillion) according to BofA, the amount of loans made by shadow banking entities amount to 25 percent of all the loans made in China by the traditional, regulated banking sector.
The system is also highly leveraged. Shadow lenders make most of their money by borrowing from regular banks at low interest rates and lending out at higher interest rates to riskier borrowers. No deposits at these institutions means they are highly vulnerable to loans gone bad, especially given the types of less-than-creditworthy clients who borrow from shadow banks.
Their system has become a massive one-way bet on property- local government revenues need money from landsales, trillions in investment products depend on continued property buoyancy, but that itself depends on more and more debt being issued to pay off existing loans. Sound familiar? And it is not just property development companies- entire cities and ministries are part of this web and could drop. In fact, some have been bailed out already.
China: Bailout Begins For Wenzhou Private Firms | Stratfor
Chinese Ministry Saved from Default - Forbes
http://www.cnbc.com/id/48875414/China_Railway_Ministry_Suffers_Big_Loss_as_Debts_M ount

What about state led industry?
China's steel industry faces toughest time since turn of century

China's high-speed rail still reporting staggering losses

China's shipyards see 40% drop in orders last year

And infrastructure? Yeah, sure:
China's 4 Most Wasteful Infrastructure Projects of 2012 - Jobs & Economy - The Atlantic Cities

Meanwhile, there is the water problem- hard to have an economy with no water.
China Heading Towards an Unavoidable Water Crisis
. More than two-thirds of China’s cities have water shortages, with some city wells more than 600 feet deep. Meanwhile, not only is 52% of industrial output produced in water scarce regions, but inefficient water use is rife. Dependent upon the product, 3 to 10 times more water is used to produce goods than the equivalent industries in developed nations.
It turns out the state planners didn't really plan for that.

Of course, if you don't have water, you probably won't have food either.
China's water deficit 'will create food shortage' - SciDev.Net Nice one, statists.

So yeah, sure, if a country doubles it's money supply in 5 years, then lines up one million men to dig holes and another one million men to fill them back in, it will tend to produce some nice statistics. But the costs of all of this pump priming is now falling due, and much of it is down to statist planning. And all of that for a GDP per capita that has scarely reached $6,000 UDS.
GDP per capita (current US$) | Data | Table

Impressive, obviously.
 
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R

Ramps

There has never been such thing as market capitalism without state interference.
True, although several nations came fairly close at certain periods; coincidentally, those periods saw an enormous leap forward in wealth and quality of life for the masses living in those nations.

On its own, the market is unstable and needs to be protected - as seen by the recent bailouts.
Untrue. If the market "fails", it fails for a reason. The State's subsequent involvement usually makes things worse because it distorts what needs to be reformed.
 

Mikey Moloney

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Joined
Oct 4, 2011
Messages
739
Not really up for discussion or debate as a proposal. It's just a big clunking fist of obvious fact.

Back after the fall of Russian communism, there was this big new orthodoxy, sometimes called the end of history hypothesis. The idea was that Washington consensus capitalism was proven to be the sole viable economic model. All alternative models were considered doomed to failure.

The only viable way to do things, the viewpoint went, is for the state to withdraw from being an active economic participant, and to leave decisions as to the disposition of resources to the private sector. The state's only valid role in the economy was considered to be the writing of regulations to apply fairly to all, the enforcement of those regulations, the provision of infrastructure, and the provision of a modest social safety net for the very poor.

Oddly, that consensus remains the dominant viewpoint, despite the fact that it is now shown to be totally untrue.

A great portion of economic growth on planet Earth is concentrated in just three states: China, India and Brazil. None of them operate the version of market-based, laissez-faire economics that dominates the EU and the USA.

They are interventionist, statist economies. And they are trouncing, really walloping the declining western nations which allow the large financial and industrial economies to do as they please.

That is the core of the issue. In the EU and the USA, the politicians wring their hands impotently, hoping and wishing that the banks would choose to start lending again, and that the big corporations start investing their cash stockpiles. In China, the Party instructs the banks exactly how much and to whom to lend at monthly meetings, and any banker who demurs in the slightest has to clear his desk.

In India, prices of a vast array of goods are set by the government, not by private entities. In Brazil, thousands of restrictions that are unheard of in the EU or the USA tie the hands of big business.

The result of this statism? Big, crushing economic victory over the west. Without these three nations, the world would have been in constant recession (or extremely close to it) for most of the last decade.
Fantastic, let's just all pay ourselves slave labour wage rates and live in factory dorms like the Chinese do.
 

pragmaticapproach

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Jul 21, 2010
Messages
8,817
Capitalism can't fall per se. Capitalism is as natural to the human condition as eating and sleeping. Capitalism along with globalisation has been around with us since we've been put on this planet.
The exchange of goods and services and capital formation are natural to the human condition, but the social arrangements regarding how private property rights are defined( who could acquire property) and the optimal level of governance have evolved over time.

Broadly speaking, decentralised decision making has proven itself utterly superior to central planning, but I would hesitate to advocate purist libertarianism doctrine of a government limited to "life, liberty and property", and indeed many classical liberal thinkers such as Adam Smith, and later, the likes of Hayek and Ropke took a similar pragmatic, "wait and see" approach.

We have a fair idea of what works best and what doesnt work. Certainly the reasoning behind tariffs, capital and price controls has been debunked, but public policy is based on whats popular unfortunately. IMO, we need as much local government autonomy as possible to bring about competitive governance among multiple jurisdictions.
 
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feargach

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By a long shot. Even their growth was based on capitalism- their factors of production were cheaper than ours. But once that runs out, it's back to normal rates of growth.
Your problems with honesty are showing again. I said market capitalism. Not capitalism per se. The 3 nations do not mess around with the ludicrous game of laissez-faire. They decide what needs to happen and order private institutions to comply.

According to your philospophy, that should have caused them to collapse ages ago. Instead, they are the only genuinely successful capitalist economies of any kind on earth.
 

feargach

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Fantastic, let's just all pay ourselves slave labour wage rates and live in factory dorms like the Chinese do.
Did you notice where I didn't suggest we copy their lead? I did.

I'm just referring to them because they are very dramatically disproving our dominant ideology that laissez-faire economics is the best way to lift people out of poverty and create economic growth. They're the only ones doing that to any appreciable extent, and they are growing like the clappers.

That doesn't demonstrate that the Chinese are good, but it does demonstrate that our dominant laissez-faire ideology is definitely wrong on all counts.
 
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