Is State Capitalism Placed to Cope with the Challenges of Globalization - Essay Example

Institution : xxxxxxxxxxx Title : xxxxxxxxxxx Tutor : xxxxxxxxxxx Course : xxxxxxxxxxx @2014 2. Is state capitalism better placed to cope with the challenges of globalization than other models of capitalism? Introduction State capitalism-whereby most of the means of production and capital are either owned or controlled by the country-has indeed attracted significant attention globally. It is indeed a model of capitalism that originated as a result of Wilhelm Liebkenecht’s work back in 1896. While different countries have adopted different models of capitalism, state capitalism has commanded significant attention, raised critical questions and emerged as a contestable issue in the face of globalization challenges where some nations have preferred it while others have argued against it thereby preferring free market economy among others. This particular paper seeks to critically analyze whether state capitalism is good enough to deal with the challenges of globalization as compared to other models of capitalism. As the economic system whereby governments manipulate the market outcomes for various reasons, many governments have embraced state capitalism given the various political and economic purposes this serves (Fioretos, 2001). The national production centres and important institutions are thus managed by the state hence the name state capitalism. Actually, state capitalism puts a significant amount of financial resources under the control of the state officials, consequently making cash used in protecting the domestic capital accessible while increasing chances of leveraging on the global stage. Regardless of this, state capitalism has been considered as quite significant in addressing the challenges of globalization (Crouch, 2005). Globalization has for several decades been a critical concern globally. In fact, towards the end of the cold war, the idea of government’s micromanaging national economies while at the same time generating prosperity seemed improbable. The dynamism and market power of various nations including Japan and USA-fueled by private investments-seemed to have totally established liberal economic model as the dominant choice. While the governments engaged in the privatization of various businesses including pensions, firms like Microsoft and Toyota Company excitedly mapped out their plans of expanding globally. Globalization became thus turned into a household name. However, along the line the risks associated with globalization as well as its challenges manifested and indeed powerfully emboldened many globalization critics. The value that comes with globalization has thus been questioned by advocate groups as well as governments and societies. Consequently, the voices advocating for de-globalization have become quite strong than has ever been. The world’s business leaders, big multinational organizations and mostly the free-market ideologies have not only been discredited but also blamed for such a crisis. As such, before the global financial meltdown had totally shaken the faith in the free market economy, new emerging-market heavyweights (mostly politically authoritarian) charted their individual courses towards realizing a major comeback and prosperity, marking a significant aspect of state capitalism hence highlighting how state capitalism is indeed better positioned than other capitalism models to stem and address the challenges arising from globalization. State capitalism has been argued to be serving well in emerging markets than other capitalism models. Many of today’s upcoming economies have had their development periods led by the state, including the currently popular Chinese economy. Despite the challenges of globalization and the global downturn, some of the markets have generally maintained their growth since the state is very much at the center of most things. In fact, up to now there is no economy that is purely a free market economy since somehow the government has to step in matters of the economy in one way or another. For instance, in the U.S.A the government has had influence over some things, including bank lending and economy’s important segments. Thus, through bureaucratic fiat, the economy is guided by the policy makers. It is an important consideration that most of western countries practice state capitalism in light of the strategic sources that are important for the security of the nation and which might otherwise be negatively impacted on by globalization (coates, 2000). One of the ways is through private investment where oil production or the infrastructures are monopolized by the government to ensure that they are not significantly affected by negative globalization impacts and war, hence remain available. Currently, state capitalism is widely deemed more effective in correcting the market failures than other models of capitalism as it intervenes to ensure social regulations in the country’s capital system. Actually, businesses are operated by the state to accumulate capital and direct investment in the construction of either a free or mixed market economy. The functions of the government and the state are thus organized as companies or industry venture. China is a good instance of how state capitalism serves. China is basically driving this type of capitalism to be a challenge to the developed countries with free or mixed market economy, considering the financial crisis of 2008. It thus smoothens the economic cycle as proved by China which is a state capitalist country that survived the consequences of financial countries as opposed to liberal countries. According to Geoffrey (1996), different state owned companies are used by the government to manage resource exploitation while also creating and maintaining more jobs. Additionally, there are other several reasons why state capitalism is well equipped to address globalization challenges than other models of capitalism. Despite various states liberalizing reforms while also integrating with the financial markets globally, the role of states in the national economies has significantly grown in a manner mostly unnoticed-through ownership of several large corporations. It has been unnoticed since it never contravenes the liberalization reforms that are often associated with (trade, the exchange rates and the direct foreign/international investments) as well as the implementing of the international standards. In fact, neither of these also denies the state owning of the publicly-listed corporations (the state capitalism) With regards to financial globalization, there are particularly two threats stemming from that; it increases the chances of the financial crisis taking place which could also lead to political turmoil and also making it easier for foreign financing to be accessed by anti-government groups and opponents. Such threats often give political leaders only two options, one being closing the economy while preventing companies from reaching international markets. This is a draconian move that may hamper the economic growth in addition to risking a political suicide especially for the authoritarian regimes that depend largely on the economic performance to maintain their legacy. Alternatively, such regimes may decide to be in charge and control the larger private sector. Thus, state capitalism not only has the strong motivation but also the very institutional capacity capable of addressing the threats. It is thus justifiable to consider state capitalism as attractive given that it denies opportunity to potential challenges while ensuring there is steady income flow (MacIntyre et al, 2008). There are other numerous benefits that come with state capitalism in light of the globalization challenges, apart from the ones that have been mentioned. It produces champions globally, champions rising to the world’s top company’s ranks. Companies also get the freedom to seek for long term profits as opposed to short term profits. State capitalism has a widespread influence from the government since most of the company’s equity positions are owned by the company or through subsidizing major enterprise controls. Regardless of this, some studies have indicated that state capitalism often attempts to worsen the performance of firms in normal market operation periods (Megginson & Netter, 2001). Despite this argument, state capitalism is capable of providing stability hence leading to a relatively better performance. There are also other criticisms that tend to weigh down the positive endorsement of state capitalism. Despite its praises, there has been criticism on state capitalism, where china’s case is an example. Although China’s economy continues to grow, the country is faced with other downsides such as state intervention, where the state meddles with the financial system and currency, which may in effect create an economy full of debts. Additionally, some nations using state capitalism have a negative experience while feeling as if their economy is being strangled by the state, especially due to an increase in the expense of the government and the size of the civil service. Some of the state owned businesses also crowd out private businesses hence becoming hard to do businesses in such countries. Due to this, the countries at times fail to grow, with a good example being in Russia. Conclusion State capitalism is indeed striking a one-in-a kind global competition, not among the competing political ideologies but rather between the competitive economic models. As a matter of fact, governments and not private shareholders currently own majority of the resources globally in order to ward off the effects of globalization. Stemming the challenges of globalization has become a key priority that the significance of state capitalism in addressing the challenges associated with globalization has been quite felt. Whether free market and other models are receding or not, state capitalism is emerging strongly where, from the analysis, one can deduce that it indeed addresses globalization challenges better than other model of capitalism. Therefore, unlike disappearing anytime soon, state capitalism will definitely remain for a long time given the fact that globalization largely characterizes the 21st century. Bibliography Crouch, C, 2005, “Models of Capitalism”, New Political Economy, Vol. 10, No. 4 MacIntyre, A. et al, 2008, Crisis as Catalyst: Asia’s Dynamic Political Economy, Ithaca, NY: Cornell University Press. Coates, D., 2000, Models of capitalism – growth and stagnation in the modern era, UK: Polity press Hodgson. Fioretos, O., 2001, the domestic sources of multilateral preferences: Varieties of Capitalism in the European community, in Hall and Soskice, p. 213-244, p.215. Geoffrey, M.,1996. “Varieties of Capitalism and varieties of economic theory”, Review of international political, economy, 3:.380-433, p.418 Megginson, W & Netter, M, 2001, “From State to Market: A Survey of Empirical Studies of Privatization”, Journal of Economic Literature, 39: 321-389. Read More