It’s the end of the semester. A degree of giddiness creeps in.

My students and I have been working through the political systems of a variety of nations. Yesterday, we talked about China.

China is a wonderful subject because any professor not completely sold out to Marxist fantasy gains the license to speak judgmentally about Mao’s ridiculous policies of The Great Leap Forward (in which the nation stopped producing food and tried to manufacture steel in backyards) and The Cultural Revolution (in which Mao deputized snotty teenagers to force their elders into self-criticism for improper revolutionary thinking).

But the fun begins to subside as you approach the present day. I was explaining to the students that although the Chinese still have the Communist Party — and it is the only party permitted to operate — the nation has rejected communism. Instead, they engage in a form of state-sponsored capitalism.

I began to say that the U.S. embraces private capitalism versus this state-sponsored capitalism of the Chinese, but then I realized that would be inaccurate. The truth, I realized and said to the students, is that both nations engage in state-sponsored capitalism.

But there is a key difference.

The Chinese government owns companies that make a profit. The United States government only owns companies that lose money.

And that is why they are loaning us money instead of the other way around.


  • Kelly Boggus

    Thank you for this.

  • Ken Day

    China is now the biggest creditor to the USA, with Japan second. I read recently that China held about 7 billion dollars of US Treasury Bonds, and Japan 6 billion. This would be in addition to Chinese investment in private industries. The US would be happy with this. Of course there is a limit to borrowing. No one, and no country can keep on borrowing, without getting into further debt. The US cannot continue to borrow itself out of the financial crisis.

    This is a good article. I agree, to the extent that a government bails out the economy, it can be regared as state sposored capitalism. The issue is with the word ” extent “. Both countries engage in state sponsored capitalism. But China is a state sponsored capitalist country, whereas America has only engaged in, to a much smaller extent, state sponsored capitalism.

    What concerns me is that states do not make good capitalists. Firstly, revenue can be used to further their poitical interests, and secondly, state leaders and employees are often less motivated over a period of time, and the long term financial performance declines.

    I have seen this in our country of Australia. During the fifties and into the seventies, employees of state enterprises were not very motivated when it came to customer service.

    It is very strange indeed, that these days, a country can seek capital from it’s biggest financial competitor.

  • Ken

    With all due respect to Mr. Day above, there are ways for the State to “sponsor capitalism” other than by directly bailing out firms that would otherwise fail. The regulatory regime that inevitably favors some firms over others — most often large firms, which can better afford the fixed costs associated with compliance, over small — is another means by which the State, rather than the market, picks winners and losers in the economy.

  • http://www.12mortgage.com Brian Brady

    Bravo! We only socialize losses in the US; this is why we are a creditor nation.

  • Roger McKinney

    My impression of the Chinese economy is that the state-owned industries are losing money while the private companies are generating most of the growth and employment.

  • mr teachersir

    @Roger

    If memory serves me correctly, those companies that were successful were made private. However, most of the companies are gov’t owned, if I recall.