and the rules need to be clear and detailed. It should function similar to a car’s turn signals, which indicate the direction the car will take in the road and future ahead. A country doing just that is China. Its five-year plan programmatic document perfectly delineates the country’s vision, directions, and action plan in the years ahead. By taking this step, businesses can avoid being unprepared and may even ask for help to align themselves with the new rules. Clarity of vision and clear communication are essential to decrease criticisms and uncertainty.
State capitalism
That which is not good for the beehive cannot be good for the bees.
State Capitalism as Guided Capitalism
State capitalism is usually wrongly associated with communism. In that system, the state owns any type of business activity with central planning of labor and input/output. Communism has been shown as effective only in certain situations with heavy crises or a war economy. In that context, the state needed to direct all resources and lots of production in a predetermined direction, such as rearmament or postwar recovery and reconstruction. Mostly forgotten is the use of state capitalism in the post-war recovery of Europe and East Asia after World War II. Then, state-led development corporations and state-owned enterprises (SOEs) rebuilt economies ravaged by war.
Despite its supposed similarity to communism, all countries practice some form of state capitalism, or economic interventionism. Some openly admit and carry it as part of a national economic model. Such countries might be from the former Soviet or communist bloc, or countries formerly associated with the USSR. Some less advanced countries also favor employment over other economic factors. Self-declared liberal countries apply ad hoc economic interventions for corporations «too big to fail» or «too important to fail,» or they apply corporate welfare to please extremely powerful lobbies, which results in various forms of economic distortion. Here the state uses subsidies, regulations, and price controls to help national companies, erect non-tariff hurdles to ward off foreign competition, and fix prices to protect an industry or wages (minimum wage) that secure some social stability. Tax credits, tax incentives, and tax exemptions are used to support business sectors or regional areas or to help establish new industries. For example, in the green energy business, less environmentally friendly fuels and fossil fuels are penalized. Regulations can elevate local standards in ways that leave foreign companies struggling to keep up or require huge expenses to realign. Others, especially those with wealth created by natural resources like oil, gas, and mining, have created sovereign wealth funds to hoard profits from the extraction industries.
Another good reason for state capitalism is that the government can act similar to the spring in a car’s shock absorber and like a rudder on the economy to absorb economic shocks and volatility and to steer some business practices. For example, a government can require the use of certain national technologies to improve the economy instead of letting companies choose. This might not be efficient in the short term, and it may cost some private companies’ profits, but it can be a winning strategy in the long term because such policies ultimately build up domestic industries. It is a trick to effectively make some industries subsidize others.
Is state capitalism too top-down? One mistake of communism is its desire to control all business activity, down to individual small businesses. State capitalism instead wants to control the major strategic sectors of the economy and regulate some others. Instead, in non-strategic sectors, such as light industry and services, the sovereign state should make rules that foster innovation and competition. This can be accomplished through low taxes and regulations, strong competition, and antitrust law. Other measures, too, are implemented to allow business to flourish without interference.
Capital, the Real Economy, and Wealth Creation in State Capitalism
Capital is a required element for wealth creation. State capitalism, by ownership and control of strategic industries, makes sure that capital, as profits, gets reinvested in industries that create wealth. State capitalism effectively monopolizes rent-seeking industries and market sectors, which produce most capital in the form of profits and dividends. A state can use that profit to reinvest in the real economy’s industries and reduce non-working capital in the economy.
Through such investment, state capitalism can be an effective strategy for economic development. One shortfall of liberal capitalism is that it is not aligned with the needs and strategic direction of a country: private businesses just chase profit or money accumulation. Usually in liberal capitalism, this is obviated by legislation and taxation to encourage private businesses to invest and enter a specific market segment. This investment is rarely encouraged to effectively meet a need, but more for declaring success by showing off highly questionable GDP numbers. In capitalism, money, like water, flows where there is less resistance and gives higher returns. So investors prefer to invest in fast food or coffee chains instead of in big industrial enterprises, which come with higher risk, longer production times, and fewer returns. Money, like water, can flow where it is unnecessary, where it does not bring benefits to the country, its people, and the wider local community. More refined forms of state capitalism as practiced in the Sovereign Economic Model are comparable to the management of water resources, such as riverbeds, basins, and coasts. Water, like money, must be directed in ways that create not disasters, but benefits to the local community.
State Capitalism 3.0 is the latest upgrade and current version. At the present moment, it is viewed as the third version after two iterations in the 19th and the 20th centuries. Currently, it is practiced to meet the following goals:
• Protect the financial markets from globalization and foreign ownership.
• Create a central bank to protect the national banking institutions.
• Progress development to the level of the most advanced countries.
• Establish a hybrid state capital.
• Promote state-led capital accumulation.
Several types of state capitalism exist. It has many forms, depending on the country and mindset:
• Some are derived from geopolitical issues, with sanctions and trade wars pushing a country to adopt passive or active forms to fight off foreign countries and their companies.
• Ideological state capitalism is more inclined to stabilization and socially relevant topics like protection of society from financialization and globalization.
• Protectionist state capitalism is more preoccupied with defending the market from foreign invasion.
• Competitive state capitalism uses this form to compete, often unfairly, with other countries.
No prescribed model of state capitalism exists and there is no formula to define which is best or even what works. The best model to use is tailor-made for the country and brings the greatest benefits to its economy.
State-Owned Enterprises as Representatives of State Capitalism
Many liberal countries, despite their self-acclaimed free markets and capitalism, own several state-owned enterprises (SOEs). Examples are Amtrak rail network in the US, banks in the UK, the alcohol monopoly in Sweden, and utilities in many countries. Germany even has a state-owned beer brewery. Further, many SOEs are owned by regional or local governments and municipalities.
SOEs can have many modus operandi, depending on their
