State Capitalism

State capitalism and State monopolies


One of the topics of the Sovereign Economic Model where I consistently get comments and sometimes pushback, is State Capitalism.

State capitalism in form of monopoly is a very common in many countries.
Some Examples are:
Oil&gas
Utilities
Telco
Airlines
Transport(rail/coach)

There are some others too where goods are pre-taxed(duty stamps) and resellers are "licensed":
Tobacco
Alcohol
Lotteries

The Sovereign Economic Model advocates strong state capitalism in core and strategic sectors. But state capitalism could also be extended to Telco with a state ownership of the network and other businesses which do have a low level of innovation and purely resell third party products like E-commerce platforms or supermarkets.
State capitalism does not mean absolute 100% shares and running operations, but a controlling stake or at least a veto share ownership. In fact, having outsider minority shareholders and management helps a state owned company with governance, I.e. avoid political influence and corruption.

Another example of market share limitation of a sovereign country


China is restricting their own tech giants Alibaba, Ant, Tencent to spread out into financial services.

https://www.zerohedge.com/markets/tencent-censured-ant-group-head-forced-out-beijings-big-tech-crackdown-continues


In this situation, 2 concepts of the Sovereign Economic Model come into play: State capitalism and Market regulation. The Chinese state makes sure that it control a strategic business (payment systems and financial services) and because of the might of these social media corporations, restricts them into tight regulation so to not allow to translate their market share in social media into financial services. So they effectively prevent monopolies to be created.

State Capitalism - Investment strategies


Many still define state capitalism as socialism or communism.
What is it?
We can differentiate between different types:

Sovereign wealth funds
These are funds, usually accumulated by oil rich nations in Middle East, Norway,Russia.
In most cases these funds just want to optimize returns, ie. make the most efficient investments anywhere in globe, thus operate just like an investor.
In some cases, they are mixed, these funds also invest inwards, i.e. they finance business in their home country
In Russia, RDIF invests and co-invests mainly inwards. The most glaring example is the Sputnik V vaccine for COVID-19.

State owned companies
State owned companies were/are historically tied to energy, ie. Oil and utilities. Probably the fact that these industries are critical. While in West these we mostly or partly privatized, in the rest of the world this is the standard.
In developed countries, there are few state owned companies, while in emerging countries it is almost a norm.
As a paradox, the biggest growth seems to have happened, while the state had a larger ownership of companies, both in Europe as in Asia.

The State itself
A government can influence business with economic policies, taxed, regulation, permits. In fully deregulated capitalist countries the government does not pose many obstacles to business, and supports the largest companies. Usually the government has to step in if critical business have large losses or face bankruptcy.
In state capitalism, the state heavily regulates some sectors of the economy, own and/or controls large business, and effectively has the monopoly in strategic industries.

Investment Models
State capitalism allows a country to move a huge amount of resources to implement a plan. The State can move state owned companies, sovereign funds and internal funds to support an industry. This combination of finance, manpower and technological skills make it easier to complete large scale projects.
Let's imagine an infrastructure upgrade in rail roads: State provides financing, sovereign fund attracts foreign co-investment, state companies provide the technology (fast trains, management systems), state owned construction firms manage the project.
State capitalism investment strategies are generally more focused on long term improvement of the general economy though infrastructure, providing employment, favoring internal development of industrial and technological goods and solution, and spending the money within the country.
Comparatively, unbundled capitalism is not about rising a tide to lift all boats.

Sovereign Economic Model VS State Capitalism


In the Sovereign Economic Model the role of the state is:

  • in control of natural resources(including land, forestry, water), similar to the Georgism economic theories
  • in control of strategic infrastructure for sovereignty/security reasons
  • in control of strategic companies(natural resources, finance, military,industrial) for sovereignty reasons
  • as main promoter/investor in certain sectors of business to promote research, innovation and growth as practiced in many East Asian countries
  • very liberal in consumer markets/small business,it promotes the limitation of market share in order to promote many players entering a market and making the economic more competitive and healthy 

In (pure) State Capitalism the government is severely limiting private business and trading. This severely limits business activity.

Survey: Good vs Bad Business?


Recently I am noticing more and more two types of doing business, which I defined as Company A and Company B. The first one is vastly preferred in developing countries, while the second is more and more common in the First World.

Company A

Company B


Provides good local direct and indirect employment with decent wages Outsources labour to cheap third party country or has low-wage local employment
Pays incomes taxes locally Pays low or no income taxes (foreign tax residency or creatively uses tax credits)
Sustainable Relies on state welfare, bailouts
Provides customers with good price/quality value Sells overhyped/overpriced goods or services
Competitive Uncompetitive, operates in monopoly or cartel mode
Average profits and shareholder payouts High profits and shareholders payouts
Develops organically with R&D and improves goods/services Uses R&D money for share buy-backs or other financial schemes



Which type of company do you think is right in your context : 1)as a person and 2) for your country ?