Thursday, March 20, 2008

Authoritarian Capitalism

One thing I have been trying to get people to get there hands around was the concept of governmental monopolies controlling various markets. Now the Boston Globe has recently had an article on the subject. The world's largest investment bank is in China -- totally controlled by the Chinese government. If the Bank (ie government) likes the concept of your company or idea, it could make life easy for you and you could have all the paperwork done within a day. Nothing wrong with that, other than the fact that it could delay the paperwork endlessly if your company rivals theirs.

The US spent billions of dollars and several decades trying to defeat Communism -- not because they were not 'free', but realistically because Communism did not allow the rich to get richer (and the poor to get poorer) based on market dynamics. It was widely believed in the US that in order for capitalism to survive in the third world, some form of democratic expression would be needed in order for markets to thrive and would bring 'democracy' to these areas as their economies improve.

Well, 20 years after Deng Xiao Ping's dictum that 'to get rich is glorious', the Chinese have created a new paradigm. You can be as open as you want when it comes to business, you jsut can't criticize the political regime. The CCP has also allowed 'capitalists' to join the Party, so that makes them part of the system rather than the regime's most frequent critics. Taking the best of both worlds, some of these government corporations allow free thinking on issues on how to dominate a market, buy up the competition, just like an American corporation - the primary difference being the government backs its corporations so that they do not lose much money or market share due to amrket forces -- things the US doesn't do.

While in the US the complaints have been that corporations are getting so large as to be too impersonal as well as offering consumers fewer choices, still, can American corporations, even its largest, compete against government backed corporations backed by the Chinese, Saudi or Russian governments?

Exxon Mobile may be the largest US Corporation with a $40B profit, but it is still not the largest corporatio in its industry -- that role goes to Russia's GasProm and don't forget that the Saudi government, no friend of democracy or free speech has its ARAMCO, a government controlled oil monopoly. Now Bolivia and of course, Hugo Chavez's Venezuela are doing the same thig -- giving unfair advatages to government sanction enterprises over free enterprise ones. This isn't what the US had it mind when it defeated international communism in 1989.

China ahs learned from the US in another way as well -- using its wealth to buy friends and influence people -- it was the country that bailed out Thailand's sinking baht as well as making huge investments in Southeast Asia, Central and South America and of course Africa, a continent the US has often ignored and overlooked. China isn't stupid -- it will demand political payback -- usually against the US at the UN and other international forums.

The US has wasted the last 5 years and $640B on its costly war in Iraq and for what goal -- higher gas prices. Before the war, Saddam was at least trading oil for fod, now Iraqi oil is off the table, we've helped Iran become the dominant power in the region, while China and India are dominating the global financial and manufacturing markets. Why bother with defense and military expenditure -- let the US do all the fighting and the funding.

With the latest uprising in Tibet and China's brutal crackdown is the US in any position to have any leverage at all? If you think the American economy is in teh doldrums right now, just wait till China starts dominating the world financial markets. The NYSE may become a secondary exchange behind that of Shanghai and Hong Kong.


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