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THE RISE OF STATE CAPITALISM

 

Over the years, governments have experimented with various types of economic systems. Capitalism, communism, socialism, social democracy and democratic socialism are some of the systems that governments have experimented with. These systems have worked for some countries and have failed in some. While communism and capitalism and to some extend different versions of socialism have been seen to be dominant, some leaders have come up with their own “synthesis” systems like Col. Qaddafi's green book with which his country Libya prospered in.

Capitalism & communism have been dominant throughout the last century and when fused with political ideologies, brought about the famed iron curtain and the resultant cold. Communism died a gradual death in the last quarter of the last century as countries first embraced mixed economies and eventually full capitalism. Privatization of national industries was the order of the day for many countries. This form of privatization and the liberalization of the market was championed particularly in the developing countries by the IMF and the World Bank. It is worth noting that this has worked to a greater extend in improving efficiency as far as service provision is concerned.

The role of government in business was significantly reduced to regulatory and infrastructure provision. The government was to put in place efficient regulatory framework and leave business to the private sector. The forces of supply and demand were to determine the market prices. While this worked well in stable and efficient political environment environments, it was faced with enough challenges in countries where the consumer was not adequately protected by their respective governments. Rogue politicians have been known to collude with large companies to come up with laws that do little in protecting the consumers.

The larger failure of capitalism is normally witnessed in times of recession like it did in 2008. The global financial crisis has been mainly attributed to the free market system and capitalism has been blamed squarely for the financial meltdown. This is because capitalism allows for growth, with some companies growing to the disadvantage of others, who more often than not feel disadvantaged. The feeling has always been that “big business” is favored by governments the world over and as such large enterprises are resented and the rich are always frowned upon and disliked as evidenced by the various riots during the G8 and the World Economic Forum events.

Sovereign wealth funds

Governments are expected to be in business only for the sake of providing affordable services for their citizens and not for profit. While this hold true for the largest part of business activities by governments, there has been a growing profit motive in various government circles across the world. This has seen the growth of sovereign funds set up by governments for the purpose of investing in profit making ventures. It’s through these sovereign funds that we have witnessed the purchase of entities like Manchester City by Qatar sheiks and the setting up of the Oilibya company in Kenya. 

The world has also witnessed the development of Dubai World which is basically a government investment. The growth of sovereign funds is not as widespread in the developing world and is somehow more grown in only selected countries. However the significance of government involvement in business for the sake of profit is evident.

State Capitalism – The new power

The failure of communism brought about the dominance of capitalism which has been dominant for a while. However the failure of liberal capitalism has brought about a very potent and powerful alternative which is state capitalism. This system fuses the powers of the state with the powers of capitalism, and the government is responsible for picking what it considers to be winning enterprises in order to maximize returns which will in turn promote economic growth. This system however uses capitalist ideas like the listing of the state owned companies on the stock market and embracing a global outlook in its business strategies.

It is worth noting that the rise of state capitalism has brought about some of the largest and the most successful companies in the world. Of the 10 largest listed companies by revenue in 2010, China was presented by 4 companies. Through state capitalism China has grown to be world’s second biggest economy. China is the biggest shareholder in over 150 biggest companies within its borders. The state is also responsible for the monitoring and controlling of thousands of other Chinese companies.

Successful state backed companies run across the board with Russia’s Gazprom being the world’s largest natural gas company and China mobile being the largest mobile phone company in the world with over 600 million customers. One of the most successful chemical companies in the world is Saudi Arabia’s Saudi Basic industries corporation while Russia’s Sberbank is one of the Europe’s largest banks. It is also worth noting that Dubai ports is the largest ports operator while Emirates airlines is experiencing one of the fastest rates of growth ever experienced in the airline industry since 911.

It cannot be denied that state capitalism is rising at a faster rate across the nations with 80% of the stock market value in China being attributed to state owned companies, 38% in Brazil and 62% in Russia. This is hypothetically the trend of the future as several countries embrace state capitalism.

The global influence

In China, the headquarters of state owned companies are marvels of technology. These headquarters have been designed by international architects and are literal symbols of the state’s emerging power across the borders and unto the entire world. China Central Television and China National Offshore Oil Corporation are some of the state owned companies with highly sophisticated headquarters that are not common with governments. Petronas, which is owned by the Malaysian government has got an 88 story building in Kuala Lumpur which serves as its headquarters while Russia’s Sberbank and VTB have got two skyscrapers side by side as their headquarters. These two banks are the largest and second largest banks in Russia respectively.

Collectively, state owned companies are tightening their influence in the global business scene and their influence can be felt across the continents. These companies are becoming much more wealthier by the day and are giving the largest private companies a run for their money.

Unlike in communism where the state nationalized private owned businesses and gained full control, in state capitalism many governments exert their influence in companies through their ownership of shares as can be seen in China, Russia, Thailand, Brazil and Saudi Arabia. The state is now becoming a big shareholder in listed companies while at the same time weeding out the inefficiencies associated with government run enterprises. However in some cases, like in Venezuela, the incompetence associated with state run companies can be witnessed in Petroleos de Venezuela due to political influence. But most state owned companies have improved and have resisted political influence and as a result are delivering quality products to their global markets.

Open Mindedness  

Countries that practice state capitalism are more open minded in their approach to business. They employ talent and have fallen in love with Western backed consultancy firms lime McKinsey and Accenture. They prefer Harvard and Wharton graduates to be in charge of their companies unlike in the past where politicians appointed their cronies to be in charge of state companies even without the relevant qualifications.

This new approach has seen an improvement to the way in which products and services are produced and delivered to the global market. These state owned companies value talent and as such local students who had traveled overseas come back loaded with MBA's and ready to work for the state because of the opportunities created by the government. Some of the state owned companies are said to pay better than the private owned multinationals which is making them attractive to the newly minted graduates from the top business schools in the world.

Conclusion

While state capitalism is known widely grown as of now, it seems to be working in places where it has been implemented effectively. A lot still needs to be done to ensure that political influence does not ruin the progress already made, but the reality is that state capitalism can be the future that the masses are longing for, as long as it works and as long as the government is effective. 

The overall success of state capitalism is yet to be witnessed to the ends of the earth and as such there are many who are still skeptical about it. However time has proved that state capitalism can work if the government is devoid of greedy politicians and the country is devoid of greedy citizens. The big question then is, is state capitalism the answer to Kenya’s economic and social quagmire?