The Mont Pélerin Society has announced the winners of its 2010 Hayek Essay Contest. The topic was:

Examine whether authoritarian capitalism is a viable alternative to its Western liberal version, to promote long term economic growth and development.

I am looking forward reading the three essays of the winners.

An interesting article on the same topic in The Economist: Leviathan Inc.

Politicians are reviving the notion that intervening in individual industries and companies can drive growth and create jobs (see article). It is not just the usual suspects—although it is true that France, the land of Colbert, is busy taking stakes in toy manufacturers, video-sharing websites and fallen national champions. Elsewhere in Europe, from Berlin to Brussels, demand for industrial policy is back. Japan’s new government is responding to what it sees as the increasingly aggressive policies of foreign competitors by deepening the links between business and the state. In America Barack Obama, the effective owner of General Motors and a chunk of Wall Street, has turned his back on the laissez-faire approach of the past: a strategic-industries initiative is under way.

A few thoughts on State capitalism and the deepening links between business and the State:

  • Capitalism is easy to define: it’s an economic system in which the means of production are privately owned. But when the general public, journalists, thinkers and economists think “capitalism”, they don’t think about private property. For them, capitalism is just when some people produce stuff for profit. Researchers thus invented new terms to describe the varieties of capitalism people around the world are living in: State capitalism, free market capitalism, corporate capitalism, etc.
  • The West doesn’t live in a free market capitalism. Some of us live in social-liberal economies, the others live in State capitalist countries, corporatist countries, etc. Just think about the sectors the State directly control (defence, money, justice, law, education, pensions, social insurance, etc.) or regulate extensively (finance and banking, oil, energy, telecoms, public transportation, agriculture, labour and accounting regulation in every type of industries/services, food retailers, etc. ).
  • I think that in the West, the two (and vital) sectors where the hand of the State intervenes the less are restaurants and the manufacturing and selling of clothes.  When you want to determine if a specific sector is heavy regulated or not, just compare it with the food/clothes sector: could you enter and exit the market as easily you open and close a shop/restaurant? is the offer incredibly diverse? do you find very cheap and very expansive products to sale for the same category of product?…
  • Forget Al Qaida. I don’t think that anybody considers that the implementation of Al Qaida’s political-economic vision would bring order and wealth to the world. You won’t see young people on Western campuses praising Al Qaida’s message as an alternative and harmonious way to live in society. When it comes to the question “how society should be organized?”, there is no ideological struggle between the West and Al Qaida.  Therefore we should limit our investment in tackling Al Qaida’s limited threat and focus on the real challenge.
  • Here comes the real challenge. There is an ideological conflict between State capitalism (from authoritarian mainland China, Russia and the Arab monarchies of the Persian Gulf to softer France) and free market capitalism (something that might look like a more free market Hong Kong, with increased individual rights and a more limited government). The danger is that a lot of people living in soft State capitalist countries believes they are living in free market capitalism and blame that system for its failures.  With Europe in turmoil, a politically and economically paralysed Japan, and high unemployment with rising public anger in America, state capitalist China’s robust recovery from the slowdown is looking awfully attractive for would-be imitators across the developing world — and some intellectuals and politicians in the developed world. It could push people and decision makers in soft State capitalist countries to accept authoritarian capitalism as a valid way to organize society. Anemic growth and high unemployment in the developed world will feed a backlash against free market sentiment. We’re already seeing more support for protectionism and a tougher stance on immigration in both Europe and the United States. In America and Europe, bankers is today’s scapegoat, but foreigners is next in line, whether the subject is currency policy, cyber-security, jobs, trade imbalances, product safety, or something else.
  • The collapse of communism made clear that government can’t simply mandate lasting economic growth. To fuel the rising prosperity on which their long-term survival will depend, political leaders in China, Russia, the Arab monarchies of the Persian Gulf and other authoritarian states have accepted that they have to embrace market-based capitalism. But if they leave it entirely to market forces to determine winners and losers, they run the risk of enriching those who will use their new wealth to challenge the state’s power. Instead, they have embraced state capitalism. Within these countries, political elites use state-owned and politically loyal, privately owned companies to dominate entire economic sectors — like oil, natural gas, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochem icals, and other industries. They finance all these institutions with the help of increasingly large pools of surplus foreign cash known as sovereign wealth funds. In the process, the state uses markets to create wealth that can be directed as political officials see fit. The ultimate motive is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).
  • Here is State capitalism’s biggest weakness: it chooses the political survival of the regime over economic efficiency and innovation.
  • I believe that the core strengths and built-in problems of State capitalism will probably decide the outcome of the system we are living in. But that’s a long-term process. I believe that things are going to get worse for free markets before they get better. That’s why advocates of free market capitalism have to voice out now.
  • There is no such thing as a Beijing Consensus. State capitalism isn’t an ideology. Some may think it is a weakness; I believe it is a very powerful strength. State capitalism is more a set of management principles. It can never match the hold that communism once had on the popular imagination, because it wasn’t born as a response to injustice. It was created to maximize political leverage and state profits, not to right historical wrongs. The system is not the same from one country to another, because the ruling elites in Beijing, Moscow, and Riyadh use it to meet distinctly different sets of needs. And no two state capitalist governments can ever fully align their interests. By its very nature, it’s exclusionary; like mercantilism, it promotes one state at the expense of others. That’s why there can’t really be any kind of “state capitalist consensus.”

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