In January The Economist had two issues focused heavily on the rise of state capitalism, one on January 21, the other on January 28. China featured prominently in both. Now that the world can't be divided into capitalist and communist anymore, The Economist has re-divided the world into genuinely free market economies and those where governments heavily intervene in the economy, either through direct ownership or industrial policies. Clearly governments take on different roles in different countries, and the Chinese state both has a large stake in the economy and intervenes heavily at the sector and firm levels. And yes, China's market economy is far from free, and I don't think it will fundamentally change from its current form for a long time. The "transition" has essentially ended.
However, it's facile to divide the world into free-market capitalism and state capitalism. Just about every government does more than the Libertarian call to provide basic public goods and then get out of the way. The US government provides a lot of regulation to make markets work and protect private property rights, but it's far from a neutral observer with no desire about who wins and who loses.
The best retort I've seen so far to the "state capitalism" discussion is provided by Niall Ferguson. In his recent Foreign Policy article, "We're All State Capitalists Now," he provides data showing that countries do not neatly divide into two broad camps, and that on most measures, such as government spending as a % of GDP, China falls largely within the normal range with many others.
An interesting nugget that Ferguson cites shows that in cross-national reputation surveys, China fairs better than the US on two scores: politicians' ethics (China ranked 26th to the US's 50th) and political favoritism (38th to 50th). Given the perception that China is highly corrupt, this is quite odd; but it shows Americans' own estimation of their system differs from that held by others.
The ongoing debate is an extension of the "varieties of capitalism" discussion carried on by political economy specialists over the last few decades. In that debate, scholars offered a variety of potential labels: liberal capitalism vs. coordinated capitalism, the free-market state vs. the developmental state, etc. None ever stuck. State capitalism seems more appealing and easier to remember, but I for one hope this year's fad soon fades.
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