Entries in state capitalism (1)


The most troublesome of Harvard Business Review’s “breakthrough ideas” for 2009

It’s a phrase to make you shiver: state capitalism. Yet HBR has named the re-emergence of state controlled enterprises as one of its “cutting edge business ideas” for the coming year.

Unfortunately none of the innovative markets that we profile here made the cut. Instead, HBR focuses on where the real money lies: government expenditures. The U.S. auto and financial bailouts are just small one piece of an increasing worldwide trend towards nationalization. As the article profiles, the largest companies in the critical sectors of telecommunications, energy, and asset management dwarf their purely private sector counterparts. The authors correctly note the risk to free markets of state-owned enterprises, specifically:

The (often authoritarian) governments that are profiting from these enterprises will be tempted to take foreign-policy gambles, confident that their market clout in critical sectors will limit the response of concerned countries.


I would add another concern: Will innovation continue to thrive when governments hold leading positions in so many sectors of importance? [See David Brooks of the New York Times for a thoughtful consideration of the people who are now making many business decisions.]

Government involvement in these sectors is not new or particularly “breakthrough” (Russia and China being obvious examples), but the extraordinary scale is. P2p lending, p2p e-commerce and locavesting are tiny free market and independent counterweights to this behemoth of government direction in market affairs. Will their appeal find new ground with those troubled by this opaque anti-market trend? Or will they simply be swallowed up?