State Capitalism

Topics: Capitalism, Socialism, Sovereign wealth fund Pages: 3 (976 words) Published: August 10, 2013
State capitalism

State capitalism in emerging markets is triumphing over liberal capitalism. State capitalism occurs when the government actively intervenes with firms and companies to boost economic growth. For example, the Chinese state accounts for 80% of the country’s companies. Hence, by controlling these multinational corporations (MNCs), the China government shapes the overall market by managing its currency, directing funds to favored industries and working closely with Chinese companies both national and abroad.

There are a few factors that initiated the forming of state capitalism. For one, infant industries needed protection through tariffs to increase their competitiveness. During the Yom Kippur war, the price of oil increased exponentially. Arab governments tightened their grip over oil companies which lead to growing financial surpluses. Embracing globalization by creating economic zones and attracting foreign investors is also a form of state capitalism. These state capitalist exercise their authority over MNCs in two forms: state owned enterprises and sovereign wealth funds.

State owned enterprises (SOES) are becoming wealthier and more powerful than before, due to judicious pruning and relentless restructuring. This has result in greater return of assets and increase in competitiveness on a global scale. However, there is hardly any direct relationship between the state enterprise and the government, where SOES report to the authorities. Instead, most governments prefer to exercise control through their ownership of shares, resulting as powerful shareholders in the developing world. Governments also offer patronage to private companies after it becomes a winner due to their lack of experience of a sector.

Apart from that, state capitalist also manage large pools of capital in the form of sovereign wealth funds (SWFS). There are 2 forms of SWFS: funds intended for investment and funds for economic development. However, the latter is...
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