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8/24/10

Is State Capitalism Overtaking Laissez Faire Capitalism

Well at least it seems so. Across Europe, and much of the rest of the developed world, the recent wave of state interventionism is meant to lessen the pain of the current global recession and restore ailing economies to health. It is believed that Reaganomics,Thatcherism, Bushonomics indirectly were the underlying cause of this world-wide economic disaster, which struck the world in 2008 and 2009.

China is today's world's leading practitioner of state capitalism, a system in which governments use state-owned companies and investment vehicles to dominate market activity. The primary difference between this form of capitalism and the Western, more market-driven laissez fair variety, is that decisions on how assets should be valued and resources allocated are made by political officials (not market forces) with political goals in mind.

Most economists suggest that in China, robust growth is a good thing, as long as it doesn't have second-order effects that undermine the leadership's monopoly hold on political power. Russia, Saudi Arabia, Venezuela, and other governments practice various forms of this system, but China gives state capitalism its global significance.

Even the US under the Obama Administration is now slowly moving towards more state capitalism, with the conservatives obviously crying wolf. What the conservatives seem to forget, say the economic experts, is that in the past the US succeeded with laissez faire capitalism because they were the center and the driving force of the world's most dynamically growing market.

Now the situation has changed and the US is not the most dynamically growing market in the world anymore. Today its China, which has the same advantage the Americans had in the past. To claim that their dynamism comes as a result of state capitalism — and illicit ways of combining political aims with corporate ones - is too far fetched. They earned it and we can learn a lot from them.

EU-Digest

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