Name: xin zhao

Date 04/22/2014

ECON 1600

Beyond the textbook?--State Capitalism

Could it be possible, that a judge both be a judge and a candidate? formulate the rule, also involve in the game? game be able to last long and grow prosperous?

The one who

If such things really happened, is the

Well, this basically just described what state capitalism is--government (state) becomes the one who take all/most of the commercial economic activities in the economic system. According to the textbook, government usually have little to do with economics, Adam Smith insisted that government should play as an invisible hand in the market (do nothing) (The Wealth of Nations); While Keynes believe that government need to regulate the market, play a role as the visible hand. (The General Theory of Employment, Interest, and Money). However, almost nobody recommends that government throw his whole body into the market--not only just hands. No wonder Francis Fukuyama prognoses that only market capitalism could last long--it is hard to imagine a game with the judge also play as a candidate, could last long.

14 years after millennium, what have happened in China, Malaysia, and Russia disappointed lots of people. State Capitalism, which definitely should decline in the

text book, is doing well or even better in those countries. Lets put textbooks away, and see what State Capitalism actually did in the economic system. According to the article The rise of state capitalism (Economist Jan 21st 2012) China Mobile and China National Petroleum Corporation, made profits of $33 Billion. Take a look on these state owned company, their station covered all over China in a very short time. What need to be pointed out is that, According to Deng Xiaopings policy, Chinese government decided to develop part of China first, there is a time that economic development being extremely imbalance. If China

Mobile and China National Petroleum were privately owned company in market capitalism, it is impossible for China to get mobile and gas station covered so fast. Besides, the state owned company avoided possible waste in occupying market, price competition.

Such economic circumstance looks familiar--monopoly in the textbook. According to the textbook, monopoly caused welfare loss, since the monopolist is able to charge a higher price restrict total output on the profit-maximizing point (MC=MR).

This is true in China, government owned company dont have very good reputation among customers. Unreasonable high price and low quality service make people

annoyed, but dont have other choices. As the only one in the market, monopolist also lack of innovations. When 4G and LTE technology is almost everywhere in the

United States, China is far falling behind.

However, when considering the whole world as a big market, those state capitalism country as a company, maybe we can find out the reason why state capitalism does better than market capitalism. The company called state capitalism,

is rich in cash flow, extremely united (no inner conflicts). Among the 4 biggest banks in the world, three of them are government owned. The biggest one is the ICBC, owned by Chinese government. China Mobile is now expanding its service In Hongkong, China Mobile is

to other countries and market capitalism area.

offering far better service quality and lower fees for Hongkong people, in order to

occupy more market share in the competitive market, I think sure China Mobile will succeed with its super sufficient cash flow that earned in mainland China. However,

such thing would also happened in mainland China with the market opening wider and wider. The banner that monopolist made to prevent competitors coming in will finally disappear. In fact, foreign/private owned banking, grocery stores, airlines are

developing fast in China. Even China Mobile now has two competitors, China Unicom and China telecom. From my point of view, in the long run, maybe Francis

Fukuyamas prognostication will finally become true.

As to those developing countries that are hurtles towards capitalism (Cuba hurtles towards capitalism--Economist Special Report Jan.21. 2012). should be a better economic system comparing at market capitalism. State Capitalism Since it is able

to develop the economy system faster and in higher efficiency. As long as the leader of the government made the right decision, the country will grow prosperous in a short time. State Capitalism sure could take hold in Cuba, it is just like a shortcut in the developing procedure. Fast but with more risks, as mentioned before, what if the leaders of Cuba are not be able to make the right decision, in the market capitalism, just one company bankrupt, in the state capitalism, the whole country bankrupt.