Mero Moment: State Capitalism Grows

This week I want to talk some more about government-funded economic development. The January 21st issue of The Economist magazine shows a drawing of the communist leader Vladimir Lenin, with his fist pumped, holding a cigar – a mirror image might be the banker from the Monopoly game wearing a red beret. The cover title says, “The Rise of State Capitalism: The Emerging World’s New Model.”

A 16-page special report on how governments are increasingly taking over industries, creating business “champions” and making communism look like Wall Street fills the pages of this issue. The bottom line of this story is that Big Government and Big Business are becoming one in many nations around the world.

Here are some staggering facts and numbers from The Economist special report:

• The Chinese state is the biggest shareholder in the country’s 150 biggest companies. State companies make up 80 percent of the value in China’s stock market.
• The 13 biggest oil firms worldwide, which between them control three-quarters of the world’s oil reserves, are all state-backed; as is the largest natural-gas company in Russia.
• State-owned China Mobile has 600 million cell-phone customers; Saudi Basic Industries Corporation is one of the most profitable chemical companies on earth; Russia’s state bank is the third largest bank worldwide in terms of market capitalization; and Dubai Ports is the world’s third largest port operator.

Corporate shrines are being erected to glorify state-owned businesses. The Economist reports that “[t]he headquarters of China Central Television … looks like a monstrous space invader striding across Beijing. The headquarters of the China National Offshore Oil Corporation resembles an oil tanker emerging from a shimmering sea.” And it’s not just China. Malaysia’s state-owned oil company “has built an 88-story tower in the heart of Kuala Lumpur.” And Russia has its own version of the “twin towers,” two sleek glass skyscrapers housing the state-owned, largest and second largest banks in the country – monuments to where Leviathan meets Babylon. Many of us recently watched Tom Cruise run down the outside of the tallest building in the world in his new Mission Impossible movie – yep, a government-owned building.

And “state capitalism” is spreading its influence. Do you like the Lenovo computer product line? The Chinese government controls the company. The Chinese Academy of Sciences gave it its seed money and then stepped in to help it purchase IBM’s computer division.

Here in Utah, at much less grander scale, Sutherland Institute calls this “state capitalism” government-funded economic development.

However we cut it, it’s all the same: governments intruding where they don’t belong, thinking they can create jobs and believing that government bureaucrats are smarter than private entrepreneurs.

The new Sheels sporting goods store in Sandy, Utah, is a good example. The city of Sandy has granted this one store nearly $17 million in tax perks along with a quarter-century exemption from property taxes. I wonder what the owners of Dick’s Sporting Goods and Big Five Sports, just down the street in Sandy, are thinking. But that’s what government-funded economic development does – it authorizes government bureaucrats to pick winners and losers using your tax dollars. And because it does, it makes our governments appear unjust, unfair and immoral.

There are better ways for governments to help Utah businesses. The best way is to lower taxes and regulations on them. Another great way is for governments to quit giving special favors to one company over another and start treating all Utah companies with equal interest and respect.

For Sutherland Institute, I’m Paul Mero. Thanks for listening