Reflection/ State Capitalism
Nathan Green
April 25, 2016
ECON 1600
Prof. Watson
Reflection - State Capitalism
State Capitalism is where the government backs companies and thus can influence the markets. Some examples are China Mobile, China National Petroleum, China Central Television, and VTB. All these companies are backed by their governments. It’s a State-directed form of capitalism. There some pros, cons, and variations of state directed capitalism.
Some pros of state capitalism is that business is backed by the government so a lot is spent on infrastructure. The state’s investment in these companies helps the companies have an advantage over other which also could be seen as a con. During this semester we talked about command economies and how the appeal of these command economies is planning. And so with state directed capitalism planning has helped it has expanded into other economies like China into Africa. The appeal of state directed capitalism is that these emerging markets like Africa are given support and money that would take private-sector companies years to build.
Some cons of state capitalism is the favoritism showed by the State to certain companies while others excluded suffer. We talked a lot this semester about incentives and how incentives matter. Incentives most definitely matter and in this state- directed capitalism those companies benefiting from the state backed funding take up the talent which could have been used by private companies. It makes start-up companies have to raise more to compete for quality well trained employee. There is an absolute advantage for the state backed company which leaves no room for fair competition. Without competition I learned that there is no innovation and innovation is needed for companies to grow and improve. Another con of state capitalism is that it doesn’t guarantee stability. Such a system only works well if ran by a competent state. China and Russia have much experience with this so they have done well with this state-directed capitalism. As I learned though this semester that the viability of state controlled economic systems like socialism and communism is that they eventually fail. We can see this happening right now is Venezuela and Argentina. They ultimately fail because there is no competition, and governments decided where resources go and sometimes governments don’t make the best decisions.
Cuba is prime for such a system as state capitalism to take hold of. Cuba is a command economy and the state already holds control of all the capital and resources. By privatizing a few of them with some state-back supported. Cuba could become another State –directed capitalist economy. Raul Castro has already abolished a few of the restrictions on Cuban citizens since April 2011. He also has set out economic reforms which have been hinted at the acceptance of an emerging private sector. The Cuban economy has also been unproductive which is another reason why such a system as state capitalism may be accepted for a new change of pace. During the semester we learned how there is not a perfect system but as market systems fail new ones emerge. Communism has been proven to fail as we can see from the fall of the Soviet Union. I can also see state capitalism as a transition system towards capitalism. Whatever may be in store for Cuba they will move towards state capitalism first.
Through the semester we have compared and contrasted various market systems. We have command systems where the resources and capital are told where to go, and we have market systems where the market decides where the resources and capital should go. I think state capitalism is a system of its own. I think it’s a transition phase and a good tool for emerging economies to use as they change into market economies. Governments must know when to let go and let the private-sector run the show.
April 25, 2016
ECON 1600
Prof. Watson
Reflection - State Capitalism
State Capitalism is where the government backs companies and thus can influence the markets. Some examples are China Mobile, China National Petroleum, China Central Television, and VTB. All these companies are backed by their governments. It’s a State-directed form of capitalism. There some pros, cons, and variations of state directed capitalism.
Some pros of state capitalism is that business is backed by the government so a lot is spent on infrastructure. The state’s investment in these companies helps the companies have an advantage over other which also could be seen as a con. During this semester we talked about command economies and how the appeal of these command economies is planning. And so with state directed capitalism planning has helped it has expanded into other economies like China into Africa. The appeal of state directed capitalism is that these emerging markets like Africa are given support and money that would take private-sector companies years to build.
Some cons of state capitalism is the favoritism showed by the State to certain companies while others excluded suffer. We talked a lot this semester about incentives and how incentives matter. Incentives most definitely matter and in this state- directed capitalism those companies benefiting from the state backed funding take up the talent which could have been used by private companies. It makes start-up companies have to raise more to compete for quality well trained employee. There is an absolute advantage for the state backed company which leaves no room for fair competition. Without competition I learned that there is no innovation and innovation is needed for companies to grow and improve. Another con of state capitalism is that it doesn’t guarantee stability. Such a system only works well if ran by a competent state. China and Russia have much experience with this so they have done well with this state-directed capitalism. As I learned though this semester that the viability of state controlled economic systems like socialism and communism is that they eventually fail. We can see this happening right now is Venezuela and Argentina. They ultimately fail because there is no competition, and governments decided where resources go and sometimes governments don’t make the best decisions.
Cuba is prime for such a system as state capitalism to take hold of. Cuba is a command economy and the state already holds control of all the capital and resources. By privatizing a few of them with some state-back supported. Cuba could become another State –directed capitalist economy. Raul Castro has already abolished a few of the restrictions on Cuban citizens since April 2011. He also has set out economic reforms which have been hinted at the acceptance of an emerging private sector. The Cuban economy has also been unproductive which is another reason why such a system as state capitalism may be accepted for a new change of pace. During the semester we learned how there is not a perfect system but as market systems fail new ones emerge. Communism has been proven to fail as we can see from the fall of the Soviet Union. I can also see state capitalism as a transition system towards capitalism. Whatever may be in store for Cuba they will move towards state capitalism first.
Through the semester we have compared and contrasted various market systems. We have command systems where the resources and capital are told where to go, and we have market systems where the market decides where the resources and capital should go. I think state capitalism is a system of its own. I think it’s a transition phase and a good tool for emerging economies to use as they change into market economies. Governments must know when to let go and let the private-sector run the show.