Monday, July 23, 2012

Fascism by any other name...

They're not calling it fascism, but it's been all the rage, especially in the last decade. The new and improved term is State Capitalism. I guess that's supposed to make it more palatable to actual capitalists.

China is the poster child for state capitalism. Many economists have predicted that China will be the world's new global economic power, replacing the United States, as they posted impressive GDP numbers and managed to avoid the calamity of 2008 to a great extent. The U.S. may be unseated as King of the Economic Hill one day, but it wont be by China.

What the experts forgot to tell you was that China avoided economic turmoil in the short term by investing billions and billions of dollars into the construction of cities that nobody lives in. They're still doing it, both in China and abroad. Yet their growth rate for this year will officially drop below 7.5% (that's assuming you trust the communist parties official data), which is well below their stated target. China is about to experience a real estate bubble burst of Biblical proportions.

The idea behind State Capitalism is that the government owns all or part of major industries. This enables these companies to bypass a lot of the red tape and regulatory burdens that privately owned companies have to deal with. Another distinct advantage is that whether the company is run well or not, they're back stopped by the full taxing power of the nation's government. How can the free market compete with such a thing?

Well, let's look at what the growth of "State Capitalism" has brought us; chronically high unemployment worldwide, unprecedented debt levels, lower standards of living and disposable income. In fact, even in the United States, where the government saw fit to become shareholders in GM, Chrysler and AIG to name a few, the percentage of Americans living in poverty is at a 20 year high.

Fascism by any other name is still fascism. It's both a rival and a cousin to communism. Both are based on the premise that a select enlightened few can do a better job of directing resources, natural, human and intellectual, than a bunch of free individuals running around freely associating and trading all willy nilly. In the case of running a prison camp, perhaps that would be so, but it's no way to create a thriving, growing economy.

State run companies may have access to unlimited financing and bureaucrats at their command, but free market, privately held companies have the incentive to excel, innovate, create, make things better, cheaper, faster, stronger. Giving consumers what they want and need in an efficient, cost effective manner is directly tied to their personal advancement. The state run business and its employees have only the incentive to obey their superiors in order to keep that state sponsored paycheck coming.

If private enterprise is allowed to continue (not a guarantee by any means) it will prove superior to the state run enterprise. It may not seem so now, because state run companies didn't have to go to investors to get a mountain of operating capital. They can print it. But in the end, you've got to produce and perform to stay in the game. They can dominate a market by force, but they wont dominate if freedom of choice has anything to do with it. If they successfully force private enterprise out of the arena, look for living standards to get progressively worse.

In the meantime, in the name of transparency, let's dispense with the "Capitalism" moniker for what is really just another flavor of fascism.

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