0.11 States and markets - soes  (Page 2/9)

State capitalism

STATE Capitalism attempts to combine the powers of central governments with the powers of capitalism. Under STATE Capitalism the government may fully or partially own enterprises, or it may exercise direct or indirect control over key enterprise decisions.

The Chinese and Russian versions of STATE Capitalism in the 21 ^st century are sometimes called authoritarian capitalism. MacGregor

Previous examples of STATE capitalism include:

• Japan 1880-1940.
• Germany in the1870s and the 1930-45. State capitalism in Germany in the latter period was better known as National Socialism.
• Italy, under Mussolini (1925-1945).
• Indonesia under Sukarno (1949-1969).

The international presence of SOE ^s expanded rapidly in the late 20 ^th century. In the process, the national identities of SOE ^s changed markedly as well.

Before 1990, all the largest firms in the world were private sector firms. Call them PE ^s or Private Enterprises. And before 1990 virtually all of the ten largest firms were American -owned.

By 2012, a very different pattern had emerged. By then, three of the world’s ten largest firms were SOE ^s , and all three were Chinese.

SOE ^s continued to grow in importance in the 21 ^st century. How substantial has the recent shift toward state capitalism been?

In the year 2000, SOE ^s accounted for only about 10% of global stock market values. (For wholly-owned SOE ^s that had been partially privatized. i.e. where government had sold off a fraction of shares to the public). By 2010, this share had doubled to 20% of global stock market values. The Economist , November 13, 2010

Ten years ago, Chinese firms were responsible for less than 1% of international business. By 2010, this share grew six-fold, to 6%, and is still rising fast.

We have seen that economics is not immune to fads and fashions. Conventional wisdom on the efficacy of SOE ^s and state capitalism has oscillated from great enthusiasm a half century ago, to strong skepticism two decades ago to once again, growing enthusiasm, until 2012. By 2014 doubts over the efficacy of heavy reliance on SOE ^s were again prominent.

Consider the record of experience in recent years.

SOE ^s are not confined to emerging nations. There is a 22 member club of rich nations called the Organization for Economic Co-operation and Development (OECD), which includes all developed nations plus Chile. In the OECD countries, SOE ^s have a combined market value of $2 trillion, and employ 6 million people. Generally, SOE ^s in the developed world are mostly in local electric power generation or water supply, or telecommunications, or as in Norway and Italy in oil and gas.

In the U.S., reliance upon SOE ^s has historically been relatively slight. The best known and largest U.S. SOE has been the TVA (Tennessee Valley Authority), which operates hydropower and nuclear power plants in Alabama, Tennessee and parts of other states. Like SOE ^s almost everywhere, the TVA pays no income taxes and pays no dividends to the owner, the government. They keep all profits. The U.S. also has had SOE ^s in Finance. By the nineties Fannie Mae and Freddie Mac, two large mortgage insurance entities owned by the government, began to rival the TVA in size. Later these troubled enterprises were supposedly “privatized”, but this was mainly an illusion. Fannie and Freddie after privatization have behaved pretty much the same as before privatization. Trouble has been coming for a long time, and finally erupted with explosive force in 2008-11, when both lost tens of billions of dollars (see chapter___).