Home > Economic Systems, Interest Rates, Market Structures, Transition Economies > State Capitalism – the new paradigm?

State Capitalism – the new paradigm?

The Economist recently had a special report on “State Capitalism” and although it is a long read here are some prevalent points which could be used in AS or A2 essays especially in the discussion parts of questions.

Basically state capitalism attempts to combine the control of the state with the potential of capitalist system. It relies on the government to select and fund organisations which it sees as potential successes and uses the capitalist toolbox of raising finance through the stockmarket and adopt globalisation. Historically this was type of system was evident in Japan in the post WWII period as it started to rebuild its economy. However one only needs to look at China to see the success of state capitalism – over the past 30 years its economy has:

– grown on averge 9.5%
– international trade has grown by 18% in volume terms
– GDP has more trebled in the last 10 years to $11 trillion
– it has over taken Japan as the second largest economy
– it has over taken the US as the world’s biggest market for consumer goods

A key point in these achievements is that the Chinese government is the biggest shareholder in the country’s 150 biggest companies and manages and incentivises thousands more.

State capitalism is also very prevalent in big firms. The 13 biggest oil firms which supply 75% of all oil reserves as state backed. Some other examples from The Economist include:

– Gazprom – biggest natural gas company
– China Mobile – has 600m customers
– Saudi Basic Industries – world’s most profitable chemical company
– Sberbank – Russian Bank and 3rd largest in Europe by market capitalisation
– Dubai Ports – third largest port in the world by volume
– Emirates – airline that is growing at 20% a year.

On stockmarkets State companies are also very prevalent – see graph below:

– 80% of stockmarket in China
– 62% of stockmarket in Russia
– 38% of stockmarket in Brazil

Remember the above are very much emerging economies and make up 3 of the countries in the BRIC group. Also the Crysler building in New York is owned by Abu Dhabi and Manchester City football club is now owned by Qatar. The Chinese have a phrase “The State advances whilst the private sector retreats”

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