THE DEBATE ON CAPITALISM MODELS AND THE SOCIAL MARKET
ECONOMY
online publication
June 2013
AUTHOR: MARCELO RESICOBRAZILFrom the fall of the Berlin Wall until the beginning of the new millennium, a world developed that could be described as unipolar. In this world an extreme interpretation of the free market was established on the one hand - the notion of a market that regulates itself completely and thus goes hand in hand with an economic policy of deregulationand on the other hand confidence in the automatic establishment and spread of the democracy according to the Western model.
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The international economic and financial crisis that unleashed itself between 2007 and 2008 largely implied a turning away from this attitude with regard to the social automatisms of history. The financial crisis, whose origins include the bursting of the mortgage market's speculative bubble
This text is a working paper of the international conference "Latin America in the context of possible ways out of the global crisis", organized by the Col-legium of the National Mexican Commission for Science and Technology in Mexico, and the KAS, 28-29 February 2012. Published in: RevistaBien Común, Vol. 18, No. 211, September/October 2012.
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El fin de la historia y el último hombrev
on Francis Fukuyama (Planeta, México, 1992) gave the impulse for this vision.
The economic downturn, which was the result of the deregulation of the markets, led to the so-called "great recession" of the international economy, which clearly revealed the deficits of an economic model based on the deregulation of the markets. Under this paradigm, the regulation of the economy - in particular the financial markets - and the protection of competition were relaxed to a large extent, there was an economic concentration of wealth and equity, and a financial system emerged that was susceptible to recurring and systemic crises.
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As a result, today we are confronted with a deterioration of social standards - especially in the developed countries - and a destabilization of social and democratic values in various countries, which at the same time have led to a long-term process of revival of a bipolar world in which competition between national or socio-cultural models of capitalism takes place. The models of capitalism become
2
See also Marcelo Resico, (2002) "Crisisen la nueva economía", Revista Valores
FCSE-UCA, December, No. 55; and "Lacrisis financiera y el debate sobre las regulaciones," Newspaper
El Economista
October 3, 2008.
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characterised by combinations of economic policy measures, a specific set of institutions and a specific socio-cultural structure. These structures are also applied to reality within the framework of a strategic approach - generally at national level - which tries to adapt the mentioned elements in the short and medium term to the state quo of the economic cycle as well as to geopolitics.The still-present international economic crisis manifested the general need for the return of state intervention to the economy, which has already been realized to a greater or lesser extent by the majority of countries (this concerns, among other things, political measures such as the preservation of companies and financial institutions through state partnership, unemployment insurance and other social policy instruments as well as state investments in infrastructure). Likewise, a debate has begun on a reorientation of national regulation and international institutions. The countercyclical policy of stronger state intervention in the economy slowed down the negative effects of the crisis, although the "end of the tunnel", while this article is being written, is still not in sight. Furthermore, alterna-tive interpretations of state intervention in the economy are beginning to emerge, and on the one hand, in most of the developed world these are perceived as selective or exceptional interventions aimed at the recovery of the economy in the private sector, which is understood as the primary growth engine. In several emerging economies, on the other hand, intervention opens the way for a new model in which state intervention aims to steer the economy indefinitely.
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In this way, the leaders of several countries have pragmatically opened up a new paradigma, "state capitalism". The belief that it is suitable for overcoming the financial crisis and deregulated markets by guaranteeing economic growth. Other countries are in an intermediate position, in a sense in expectation. In the context of these emerging trends, it seems that a debate on economic systems and their political side effects will be intensified in the future, while at a global level it can be seen that the international system is threatened not only by the economic effects of the crisis, but also by different views on the "right" organization of this international system, which in turn are based on divergent models of capitalism.The changes in the balance of economic and political power at the international level, which have become evident, for example, through the development of the G-7 towards the G-20 states, make it inevitable to confront this issue, especially if an answer is to be found to the question of the appropriate design of the new international architecture.
4 The central thesis of this paper is that there is a third alternative between the "capitalism of deregulated markets" and the "capitalism of deregulated markets". 3
Ian Bremmer, (2009). "State CapitalismComes of Age, foreign affairs
May/June, Vol.88, Issue3.
4
Bremmer, I., Roubini, N., (2011). "A G-Zero World, foreign affairs
March/April,Vol.90, Issue 2.
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the "state capitalism". This is the "social market economy", which can provide an appropriate response to national challenges just as it can contribute to the reorganisation of the international system.
II The Limits of State Capitalism
State capitalism represents a systemic narrative within which the government appears as the dominant economic actor and uses the market in principle for its own political advantage. Political authoritarianism can go hand in hand with state control over key economic sectors. Governments that pursue state capitalism know, at the latest after the experience of communism in the Soviet Union, that the maintenance of economic growth is essential in order to maintain the monopoly over political power, and that the economy in such countries can theoretically preserve the existence of private property and an epragmatic opening in favour of foreign trade, provided this is done in the service of the state and its leaders. The government uses the state-owned companies or those controlled by the state and other social actors (trade unions and social applications, as can be observed in Latin America, for example) to advance its policies. In the system of state capitalism, business success depends on the close relations between entrepreneurs and political functionaries, while the expansion policy of the state in terms of state activities and powers offers further possibilities for pushing economic and social actors into dependence on the state.According to analysts investigating this system, state capitalism has three main actors: state-owned companies (mainly in the oil and other relevant sectors), allied private national corporations, and state-managed financial funds.
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The large state-owned companies usually have a monopoly character in their sector, enjoy favourable conditions and are also financed by the state. The government also uses selected private companies, so-called "national champions", to do-minise key industries.
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As a result, these state-owned or state-controlled enterprises usually benefit from a dominant role, both within the domestic economy and on export markets. the possibility of long-term state financing enables public financial institutions to gain control over the most dierelevant investment projects. The state, on the other hand, receives capital
through the accumulation of foreign exchange reserves from exports by appropriating the profits from raw material deposits as well as the profits from the business activities of the large controlled firms. The motivation behind the investment decisions is thus both political and economic. The state controls the economy by acting like a capitalist (in the way Karl Marx
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Based on Ian Bremmer, (2008) The Return of State Capitalism, survival vol. 50, no. 3, June-July, pp. 55-64., of the four mentioned.
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Large private firms are dependent on the patronage of the state, which creates legal restrictions for the elimination of competition, preferential access to state contracts, subsidies, long-term financing of investments, etc.
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This means that he uses the surpluses from the private economy in order to invest them later. The policy of "appropriation of surpluses" requires a production system capable of generating wealth. The cultural characteristics of Latin America mean that our dominant form of state capitalism is characterized by a personified or charismatic authoritarianism and a demagogic patronage of a state that distributes resources to win elections and supporters. In some countries of the region, this policy is based on the abundance of raw materials, which currently achieve high prices on the international markets. However, such a system wastes valuable resources by investing dubious economic rationality and poorly designed social policies by not showing the slightest interest in motivating its members to take the initiative and become independent.The success of this system thus remains dependent on the continued existence of the international framework conditions that make its existence possible in the first place (international prices), as well as on the level of inefficiency and contradictions generated by the system and whether these are fully perceived by the population.From a more general point of view, state capitalism in itself is a system with strong limitations that increase steadily over time.Economic decisions taken by politicians and bureaucrats contribute further inefficiencies, resulting in economic systems losing competitiveness, efficiency and productivity.high administrative costs, inefficiency and growing corruption in the state sector entail additional costs for the functioning of markets. On the one hand, the mixing of business and government activities prevents real competition. On the other hand, representatives of state capitalism - as well as those of the de-regulated market model - do not believe in monopolies. Distortions of competition such as imbalances, mismatches, bottlenecks, etc. lead to a misallocation of resources, which in a state capitalist system basically implies new interventions and thus a cost-plus circle.Companies that maximize political targets
are usually neither innovative nor productive, since political criteria often hinder efficiency and entrepreneurship. The investments that are made based on political calculations disregard economic criteria and somit-tically jeopardize even the growth of the actually favored companies. Similarly, state loans for risk reduction are directed exclusively at large firms and the small ones are left empty-handed. Corruption increases with the growth of the state and leads to reduced quality and functionality of public administration, public services and infrastructure. Over time, therefore, the systems of state capitalism begin to crumble. 7
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Walter E. Grinder, John Hagel Iii, "Toward a Theory of State Capitalism: Ultimate