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Jeff Hicken
ECON 1600
State Capitalism
4/24/14

State Capitalism: A Reflective Essay
By Jeff Hicken

For the last century or so there has been a debate unlike any other between two
different schools of thought; one being Capitalism and free markets, the other
Communism and central planning. Throughout this time period both systems have been
tried in different variations, many times over. Toward the turn of the century Capitalism
and Democracy triumphed over Communism and it appeared to be the only valid system
left. However, a new system is now making its way into the spotlight around the world,
which is called State Capitalism.
State Capitalism is a system that involves a communist political system, but a
capitalist economic system. The state remains in control of production, but allows the free
market to work underneath it. A valid question may be how is this system any different
from Communism? My response to this would be that although the state does control the
production of major industries, it does not set the prices of goods and allows them to
fluctuate based on supply and demand. In other words, these large and important
companies are state owned, but privately operated.
The best example of State Capitalism today is in China. Many countries around
the world are now looking to China as a model to follow because of their impressive
growth rate (7.4% of GDP according to the Economist Magazine). Compare that to the
growth rate of the United States (2.6% of GDP according to the Economist Magazine)
and it does look very appealing. It is interesting to note that given these two growth rates
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it would take China around 9.5 years to double its GDP, whereas it would take the United
States nearly 27 years! State Capitalism looks very great when looked at in these terms,
but there is more to it. Although this appears to be very impressive in terms of numbers,
my thought is that State Capitalism does not provide sustainable growth in the long term.
There are several different benefits to State Capitalism that China boasts about.
One of those is that with State Capitalism an economy will grow more rapidly. We can
see that this can be true if we refer to the growth rates mentioned above. Another benefit
that is very appealing to many is that State Capitalism is not as prone to financial crises
like the 2007 recession and the Great Depression of the 1930s. This is perhaps the
greatest benefit of State Capitalism and is affecting Democracy more than anything else.
The world is very skeptical of Democracy and free markets right now because many were
affected negatively by the recession we have been experiencing for several years.
There are also many flaws to State Capitalism. According to the Economist
Magazine, income inequality is becoming a big issue in China. Income inequality exists
in Democracies as well, but it appears that it could be a bigger problem with State
Capitalism because so much power is concentrated in so few hands. I believe that in the
future there will be a handful of oligarchs holding the majority of the wealth in China and
cronyism will thrive. Another issue with State Capitalism that I see involves human rights
and the freedom of the people. It has already been noticed in China that the state has been
controlling much of the media. This is a huge infringement on freedom of speech and
could give the state too much control over the people and the information they receive.
Yet another problem I can think of when it comes to State Capitalism is that of efficiency
in business. If we look at empirical data we can easily see that government run businesses
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and agencies are extremely inefficient, which is a problem because resources are not used
and allocated properly, and this can affect the economy as a whole.
A country that is toying with the idea of Capitalism and is also an important
country to watch, is one of the few countries where Communism and Socialism has
survived into the twenty first century. Cuba has been a socialist country for many years
under the direction of Fidel Castro. Now, Cuba is looking to privatize many parts of the
economy in order to save it from disaster. The problem with this is that when a country
has been operating under a system for a long period of time it is usually not an easy
process to make changes and reforms. We can look at the Soviet Union as an example,
because when the wall was brought down they also worked to privatize many parts of
their economy. This was a very difficult time for the people mainly due to shortages of
needed goods and uncertainty of the future. It is perhaps for this same reason France has
never fully succeeded to move away from Socialism. Cuba will deal with similar issues
as these as it works to make changes in its economy. This may be even more reason as to
why State Capitalism would be appealing to Cuba. It would be a way to allow the free
market to begin to work, but still keep ownership of major industries and reduce the
likelihood of financial crisis. An article in the Economist Magazine entitled Money Starts
to Talk states, Ral Castro is trying to revive the islands moribund economy by
transferring a chunk of it from state to private hands and by streamlining a cumbersome
central-planning system. My thought is that Cuba will turn to State Capitalism in order
to revive their economy and still remain in control. I do not see them turning all the way
to Democracy and Capitalism due to their deep roots in Socialist ideology.
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After reflecting on all of these ideas while writing I have come to the conclusion
that State Capitalism will be a short-lived success story rather than a long-term viable
system. I believe that China will see even greater problems arise with social inequality,
inefficiency, and freedom of speech. These will all have a negative effect on the country
and its economy in the long run, although it may take many years.
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Money Starts to Talk. (2013, July 20). The Economist. Retrieved April 24, 2014, from
http://www.economist.com/news/americas/21581990-and-eventually-perhaps-
one-currency-tempo-reform-accelerates-money-starts
Revolution in retreat. (2012, March 24). The Economist. Retrieved April 24, 2014, from
http://www.economist.com/node/21550418
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