Statist Strongmen Putin-Xi See History Alive in Capitalism Clash

[Aepsilons]

Great discourse here ! Now this is an intellectual discussion.

 

[Jlaw]

I think so...the bold part, it's very similar to me.

When SMEs can't get commercial loans from state-owned banks, they turn to some small loan companies and bonding companies for help. Standard LPR is 5.7% for state-owned banks, for bonding companies, however, it could be 30%. In Zhejiang province and other developed regions, it could be 40%. That's why so many small companies got bankrupted, the owners committed suicide when they can't repay the loan. This is bad situation.

There was a reason why state owned banks didn't give SME's the loan in the first place. SME's owners committed suicide is the result of getting loans from other sources when they don't qualify in the first place.

 

[LeveragedBuyout]

Great discourse here ! Now this is an intellectual discussion.

Yes, nearly half of the PDF users whose posts I care about have already participated in this thread. The quality of discussion is noticeably higher here than in the rest of PDF.

 

[Nike]

Unlike the Chinese who placed more commitment to reform their economics policy and strive for better administration system and public accountable in their government spending, the Russian seems not be really much different than their initial phase during the early years of Russia as a Nation back in 90's era. Putin itself cannot bring Russian economic much more better than when he delivering his speech during 2012 election. His heavy handed style bringing much of Russian economy resources towards a handful of Conglomerates around his inner circle. It is much different than how Conglomerates be formed within US Liberal Capitalism style, a story almost all of us here know how they bound together and how Chaebol or another State enterprises in much of Developing world worked .

" Putin said his government had been right to reassert control over the energy sector, an indirect reference to the breakup of Russia's largest oil firm, Yukos, whose assets were largely bought up by state-controlled Rosneft (ROSN.MM) and whose owner, Mikhail Khodorkovsky, was jailed for tax evasion and fraud.

The article, Putin's broadest discourse on how he would run the economy should he be elected for a six-year term, also identifies continuing dependency on natural resources and de-industrialisation as Russia's greatest economic weaknesses.

But the steps he proposes to modernise the $1.5 trillion economy lack detail, are in part contradictory and make only a vague commitment to deliver on past privatisation pledges.

Putin is the clear front-runner to win the presidential election, but the popular mood has shifted in Russia after tens of thousands of protesters turned out to protest alleged ballot fraud in a December parliamentary election.

Critics, who have branded Putin's ruling party a band of "crooks and thieves", plan to turn out again in force on February 4 to demand wide-ranging electoral reforms aimed at breaking the 59-year-old premier's de facto monopoly on power.

OPEN ECONOMY

In the 20 years since the collapse of the Soviet Union, Russia has become "an organic part of the world economy", but is still exposed to commodity-price swings, reliant on imports of consumer goods and plagued by capital flight, Putin wrote.

Russia, as a member of the World Trade Organization, should open up to global competition and become a leader in sectors like pharmaceuticals, composite materials, aerospace and communications technology.

But Putin also defended his support for an active industrial policy, saying: "Private capital will not voluntarily enter new sectors as it does not want to bear elevated risks."

Bulking up state corporations active in high technology, infrastructure and nuclear power would presage their conversion into public firms that can be floated on stock markets.

"I consider it possible for the state, by 2016, to reduce its stakes in some resource companies and to complete its exit from large non-resource companies that are not tied to natural monopolies and the defence sector," Putin wrote.

The article said little about restructuring state-controlled gas export monopoly Gazprom (GAZP.MM), criticised by investors for high costs and inefficiency, beyond saying it should divest non-core assets such as its media holdings.

Economists say Putin will need to deliver on his promises to spur economic growth, which has slowed to a range of 4-5 percent since the 2008-09 global crisis from prior rates of 6-7 percent.

"As always, implementation will be key," said Ivan Tchakarov, chief economist at Renaissance Capital, who warned that, without reform, Russia could slide into 'twin' trade and budget deficits.

Putin puts state capitalism first for Russia | Reuters "

 

[TruthSeeker]

The difficulty with all economic systems is finding the most productive balance between allowing free actors (hence harnessing human greed and innovation to the max) and constraining and managing free actors (hence controlling the damaging effects of boom and bust and envy). I think state capitalistic systems benefit in today's world trading system because they can lunch off the areas in the world where free actors are allowed to do their thing (innovate), while using their state power to protect their own industries from the destructiveness of competition. If, someday, all nations operated state capitalistic systems, then I think technological progress would stagnate and economic depression would follow as market forces longer could mediate resource allocations. Also, I think state capitalism leads to excessive privileges for a political ruling class that is very difficult to reign in. I believe that state capitalism inevitably leads to an authoritarian political system. Like the US Constitution, the economic system must have a variety of balanced, competing power centers if personal freedom is to be achieved. Hence, a balance of state and private economic actors offers the best hope for productivity, economic fairness and personal freedom, IMHO.

 

[Edison Chen]

You've already provided a great example, which follows the precedent set by the Japanese zaibatsu/keiretsu, in which a conglomerate is centered around a captive bank, which must provide below market-rate financing to the sister organizations. Perhaps @Nihonjin1051 has better/more recent information on this, since he seems to have extensive knowledge about internal controls, and is still in academia, but here are two papers I read over the years about it:

The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment - Scharfstein - 2002 - The Journal of Finance - Wiley Online Library

We develop a two-tiered agency model that shows how rent-seeking behavior on the part of division managers can subvert the workings of an internal capital market. By rent-seeking, division managers can raise their bargaining power and extract greater overall compensation from the CEO. And because the CEO is herself an agent of outside investors, this extra compensation may take the form not of cash wages, but rather of preferential capital budgeting allocations. One interesting feature of our model is that it implies a kind of “socialism” in internal capital allocation, whereby weaker divisions get subsidized by stronger ones.

Resource Allocation within Firms and Financial Market Dislocation: Evidence from Diversified Conglomerates

When external capital markets are stressed they may not reallocate resources between firms. We show that resource allocation within firms' internal capital markets provides an important force countervailing financial market dislocation. Using data on US conglomerates we empirically verify that firms shift resources between industries in response to shocks to the financial sector. We estimate a structural model of internal capital market to separately identify and quantify the forces driving the reallocation decision and how these forces interact with external capital market stress. The frictions in internal capital markets drive a large wedge between productivity and investment: the weaker (stronger) division obtains too much (little) capital, as though it is 12 (9) percent more (less) productive than it really is. The cost of accessing external capital funds quadruple during extreme financial market dislocations, making resource allocation within firms significantly cheaper. The estimated model allows us to simulate the propagation of the 2007/2008 financial market dislocation. The counterfactual out of sample simulated data is remarkably consistent with the actual data and shows that improved resource allocation in internal capital markets offset financial market stress during the recent financial crisis by 16% to 30% relative to firms with no internal capital markets.

---

In other words, the holding company overrides the natural budgeting process and determines capital allocation based on its own priorities, and based on the market rates of capital (i.e. if market rates are high, the holding company turns to internal financing by borrowing/stealing from cash cow operating companies). Sometimes this is visionary, as those weaker divisions simply require some support in order to grow and become dominant industry players, but more often than not, this interference ends in failure, which is why most conglomerates trade at a discount to the sum of their parts valuation (i.e. if one spun off each of the OpCos and then took the sum of their value as pure play companies, it would be greater than the market value of the conglomerate).

Thanks, I learn a lot. This is nearly planned economy! I thought that happened only in China due to the planned economy in the past. In difficult times, this type works well, but it can't last long.

 

[LeveragedBuyout]

Thanks, I learn a lot. This is nearly planned economy! I thought that happened only in China due to the planned economy in the past. In difficult times, this type works well, but it can't last long.

Indeed, there are specific cases (irregular market conditions/crises, certain stages of economic development, etc.) where a planned economy can work, but for the vast majority of cases, the market mechanisms are the best allocators of resources. At the end of the day, both models come down to trust in people; state capitalism puts its trust in an elite few, market capitalism puts its trust in the dispersed crowd. Different scenarios favor each model. That's why the conglomerate model has mostly been abandoned in the US (which culturally distrusts concentration of power), but is more prevalent in Europe and Asia, where state intervention in the economy is both more common and more accepted.

I appreciate your contributions in this thread. I also learned a lot.

 

[Indos]

In the end, the spirit of a passionate startup entrepreneur who must fight and cope many obstacle that can be found in many bad government regulation and restriction that make it matter. I prefer less regulation for small medium enterprises to make market capitalism works better. We have to give incentive for the startup businesses who has lack of capital, experience, and political power but in other hand many of them have huge spirit and ideas (since they come from younger generation) that is needed to make our economy competitive and resilient. .

In the old time, USA people can start their own business from home (Microsoft, Google, Nike, etc) , but not any more now (@LeveragedBuyout is it really what happen in USA ?)

 

[LeveragedBuyout]

In the end, the spirit of a passionate startup entrepreneur who must fight and cope many obstacle that can be found in many bad government regulation and restriction that make it matter. I prefer less regulation for small medium enterprises to make market capitalism works better. We have to give incentive for the startup businesses who has lack of capital, experience, and political power but in other hand many of them have huge spirit and ideas (since they come from younger generation) that is needed to make our economy competitive and resilient. .

In the old time, USA people can start their own business from home (Microsoft, Google, Nike, etc) , but not any more now (@LeveragedBuyout is it really what happen in USA ?)

Essentially correct, Indos. While the so-called startup community in Silicon Valley appears to maintain the illusion that small businesses can still thrive and grow easily in the US, the truth is that technology (and even more specifically, software) has unique characteristics, and the venture capital community offers a safety net to unworthy ideas there that is unavailable to any other industry.

The truth of the matter reveals itself with a business like Home Depot. For those who are not familiar, Home Depot is a hugely popular "big box" retailer of home improvement and construction products (I believe a competitor, Kingfisher's B&Q, operates in China). The founders of Home Depot have repeatedly stated that due to the crushing weight of regulation and taxes that exist today, they never would have been able to succeed and build a multi-billion dollar company if they had tried to do so today. Politicians, and the citizens who elect them, see business as a monolithic bloc, and forget that only the largest businesses are able to hire the armies of lawyers and accountants necessary to survive government regulation, and only the largest businesses have sufficient revenue to bear the costs of this compliance. Obamacare may be the final nail in the coffin that crushes SMEs in the US, and it shows in the lackluster job growth we've seen since Obama entered office.

As you say, we need to provide incentives the founding of new businesses and enable them to succeed. They already have a disadvantage with higher capital costs (due to a short track record, low revenues and earnings), why compound the issue with this crushing government regulation?

 

[Nike]

Essentially correct, Indos. While the so-called startup community in Silicon Valley appears to maintain the illusion that small businesses can still thrive and grow easily in the US, the truth is that technology (and even more specifically, software) has unique characteristics, and the venture capital community offers a safety net to unworthy ideas there that is unavailable to any other industry.

The truth of the matter reveals itself with a business like Home Depot. For those who are not familiar, Home Depot is a hugely popular "big box" retailer of home improvement and construction products (I believe a competitor, Kingfisher's B&Q, operates in China). The founders of Home Depot have repeatedly stated that due to the crushing weight of regulation and taxes that exist today, they never would have been able to succeed and build a multi-billion dollar company if they had tried to do so today. Politicians, and the citizens who elect them, see business as a monolithic bloc, and forget that only the largest businesses are able to hire the armies of lawyers and accountants necessary to survive government regulation, and only the largest businesses have sufficient revenue to bear the costs of this compliance. Obamacare may be the final nail in the coffin that crushes SMEs in the US, and it shows in the lackluster job growth we've seen since Obama entered office.

As you say, we need to provide incentives the founding of new businesses and enable them to succeed. They already have a disadvantage with higher capital costs (due to a short track record, low revenues and earnings), why compound the issue with this crushing government regulation?

Maybe we can't see the rise of such kind like Facebook, Twitter, Google and such anymore, isn't true?

 

[LeveragedBuyout]

Maybe we can't see the rise of such kind like Facebook, Twitter, Google and such anymore, isn't true?

Facebook, Twitter, and Google are still possible, because while they look like separate innovations, in truth, it's all the same company. 90%+ of their revenue comes from advertising. The entire search and social media industries in Silicon Valley are based on advertising revenue, and that's what the VCs fund. Software is also an exception due to its unique characteristics, but other than that, founding and growing an SME is extremely difficult these days.

Good luck trying to start a new manufacturing company or retailer, though. In other words, good luck trying to produce something tangible in America. Remember that Tesla was built by someone who already had made his billions through Paypal and had connections with all of the big VCs in Silicon Valley and the "green" community (but I repeat myself), and got hundreds of millions of dollars in government subsidies to grow his business. Most people don't get the benefit of that kind of crony capitalism.

 

[Nike]

Facebook, Twitter, and Google are still possible, because while they look like separate innovations, in truth, it's all the same company. 90%+ of their revenue comes from advertising. The entire search and social industries in Silicon Valley are based on advertising revenue, and that's what the VCs fund. Software is also an exception due to its unique characteristics, but other than that, founding and growing an SME is extremely difficult these days.

Good luck trying to start a new manufacturing company or retailer, though. In other words, good luck trying to produce something tangible in America. Remember that Tesla was built by someone who already had made his billions through Paypal and had connections with all of the big VCs in Silicon Valley and the "green" community (but I repeat myself), and got hundreds of millions of dollars in government subsidies to grow his business. Most people don't get the benefit of that kind of crony capitalism.

It's more like almost impossible to penetrate the barrier has been made by the incumbent big player ( especially in manufacturing, automotive and retailer sector) , with their tendencies to make a merger and capitalizing their resources and make them much more proficient and effective money printer in the so called free market society.

 

[LeveragedBuyout]

It's more like almost impossible to penetrate the barrier has been made by the incumbent big player ( especially in manufacturing, automotive and retailer sector) , with their tendencies to make a merger and capitalizing their resources and make them much more proficient and effective money printer in the so called free market society.

We conservatives often regard China now as more capitalist than the US. It's a disgrace that in every generation, we have to learn the same lessons about the evils of the Democratic Party and the economy-destroying government initiatives that they put into place. Big business will survive any new regulation, even as Democrats claim that their new laws are aimed at breaking the power of big businesses. Meanwhile, SMEs, the engine of job creation, die by the thousands. It's horrifying.

 

[Developereo]

@Developereo , @Maxtini

As a wise man once said, before you start on a journey, it helps to know what your destination is.

The article in the OP confuses a number of issues, from political democracy to economic systems, and is mostly interested in peddling the usual "we are free" and "they are enslaved" narrative which sells to some Western audiences.

So the first question is, "what kind of society does one want?"

While no one disputes that America is the undisputed super power, and probably has the most opportunities for material enrichment, it does not follow that everyone else wants to "be like America". I know a lot of Swedes and Germans, and they have no desire to move to America. Many Westerners prefer a more social democratic system.

In that context, the role of government v/s oligarchs v/s vox populi needs to be balanced, and each society will find a different balance. There is no "right" balance point, since there is no "right" answer to the question of how much social democracy.

 

[Genesis]

Weird discussion, America can be said of being the, at this point in time, the final form of a country. China is developing, our model today succeed because of exactly that.

US adopting Chinese model is like Lance armstrong putting on training wheels, and China adapting US model is like me playing in the NBA.

America didn't lose, America is like Tim Duncan, consistently performs, when he gets 18 and 9 people asks what happened.


China is the new kid on the block, but not so much lately, we are still new, again not so much lately. People think it's exciting, but we are plagued by as much doom sayers as the US does, though possibly less. The Golden State warriors are exiting, the LA Clippers' Lob City are exiting, but they win nothing. Duncan does.


China will eventually shift to not American model, but a form that is Chinese. It will be something close, but not necessarily that.


I firmly believe China will win in time, but State capitalism and Free market are not in contrast but more in different stages. At least to me.