Issue
: State Capitalism
This
house believes that state capitalism is a viable alternative to liberal
capitalism.
Pin-Point
SUMMARY
Prop.
1. First,
countries that have strong systems of state capitalism showed more resilience
during the financial crisis of 2008-09.
A. Large
emerging economies where state capitalism is the norm, such as China, India and
Brazil, were able to avoid a severe recession thanks, in part, to the
capacity of their governments to deploy resources through state banks
and through state-owned holding companies.
2. Second,
state capitalism today is a system in which governments have realised that
profitable state-owned enterprises make the state stronger.
A. Thus,
even if large state-owned firms have a "double bottom line", in which
social and political objectives are important, profitability has become a key
goal.
B. Large SOEs, moreover, no longer have the
government as the sole owner. The largest state-owned enterprises in the world
are publicly traded and have large institutional investors monitoring their
activities.
C. Furthermore,
big SOEs compete internationally, follow international reporting standards and
have professional management.
3. Third,
in state capitalism today we find Leviathan commonly acting as a minority
shareholder, rather than as an owner and manager.
A. This
means that the most common agency problems associated with state ownership (eg,
lack of commercial orientation, the absence of high-powered incentives and the
influence of politics in the management of corporations) have been tamed.
B. Through
this minority ownership model, governments around the world keep cash-flow
rights in key industries without necessarily having to worry about running
companies themselves.
C. Surveys
of state ownership by the OECD and by academics show clearly that many of the
formerly state-owned and controlled corporations now have the government only
as a minority shareholder.
D. Therefore,
many of governments' best assets, in Europe and the emerging world, are now run
by professional managers who get paid for performance and are usually not
appointed by politicians.
OPP.
1. State
capitalism is a system in which the state dominates market activity for
political gain, and China is its standard bearer.
2. State
capitalism has crucial weaknesses.
A. First,
the primary purpose of this system is not to produce wealth but to ensure that
wealth creation does not threaten the ruling elite's political power. Forced
to choose between public prosperity and their own security, state capitalists
will tighten their grip every time
B. Second,
there is "creative destruction", a process that invests liberal
capitalism with a self-regenerating dynamism.
i.
Those who administer state capitalism fear creative
destruction—for the same reason they fear all other forms of destruction that
they cannot control.
ii.
When old industries die, workers lose jobs and wages,
a problem that can drive citizens into the streets to challenge authority. In a
state-capitalist society, lost jobs can be pinned directly on state officials.
Of course, workers in a free-market system blame politicians for lost jobs and
wages too
iii.
But when the government owns the company that owns the
factory, its responsibility for workers and their welfare is more direct and
more obvious.
C. Nor is
a state-capitalist system well equipped to inspire innovation.
i.
To compete
globally, Chinese leaders know they must continue to push their economy up the
value chain with development of new-generation information, energy, bioscience
and bioengineering technologies.
ii.
Government-directed investment can play an important
role, but over the longer term, state officials cannot value assets and
allocate resources as efficiently as market forces can.
3. Here
lies the lasting strength of liberal capitalism.
A. Human
beings value opportunities to create prosperity for themselves and their
families, and free markets have proven time and again that they can empower
virtually anyone.
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