A taxonomy of state capitalism

Thus, a new rivalry between two politico-economic systems appears to emerge again. Market capitalism seems to be well analyzed and understood, since it has been in the focus of economists at least after Smith (1776) dealt with the “wealth of nations”. But for state capitalism the literature appears to be rather scant. In the same vein, the entire concept of state capitalism is characterized by a high degree of fuzziness. It is one of the main aims of this study to increase clarity of what state capitalism is and how it differs from market capitalism.

First of all, it is essential to note that state capitalism is a global phenomenon with a number of commonalities among countries adopting this economic order. At the same time, structure, policies, but especially economic performance of this economic order differ significantly between the respective countries. This does not only relate to the growth rates of real gross domestic product (GDP), but also other development indicators such as income and wealth distribution, life expectancy, literacy, a health indicator such as infant mortality and poverty rates. This divergence could possibly be the outcome of variations in the economic orders of the respective state capitalist countries. So, the research question that is posed is the following: What is state capitalism and how can its significant performance differences be explained?

In the course of this study, before this question is tackled, there is subsequently a comparison of Russia and China as typical examples of state capitalism with widely diverging development trajectories. Afterwards antecedents of modern state capitalism are identified. For reasons of space looking back at prior forms of state capitalism will be done in a rather concise manner, but sufficiently comprehensive to underline that state capitalism is not a completely new phenomenon.

In order to seek for answers to the research question a theoretical basis is needed. Here elements of New Institutional Economics (NIE) are chosen. This is due to the fact that in state capitalism institutions play such a crucial role. In general, there are numerous rules and the respective economies are highly regulated. By the same token growth, or more generally development, hinge crucially on institutions. Since it is the aim of this monography to relate structures and policies to performance, an institutional approach is all the more warranted.

Generally speaking, state capitalism is far from a system with a minimalist or Nachtwächter state, where the corporate sector acts largely unconstrained. Markets do not work frictionless. Transaction costs are ubiquitous in economic systems, but tend to be even higher in state capitalism with its less perfectly functioning markets compared with market capitalism. In order for markets in state capitalist countries to function at all the state needs to provide the regulatory setting or order policy, but also intervenes into the economy quite frequently and significantly with process policy in the terminology of Eucken (1990). In order to analyze these rules and interventions it seems to be inevitable to apply an institutional approach.

For this purpose, different elements of NIE are applied. First of all, institutions need to be defined, but also their functions and their role in institutional change are of quintessential importance. Since the research question relates to performance and therefore development, it is essential to understand how institutions changed in the course of time. Performance differences appear to be at least partially the outcome of differences in institutional change.

After the introduction and the theoretical part, the next section deals with state capitalism itself from the viewpoint of previous literature. The state of research is illustrated. It will be shown, how state capitalism is looked upon in the literature. This entails different concepts of state capitalism. Numerous scientists have defined state capitalism differently and this includes the fact that they have placed divergent emphasis on central elements of state capitalism. After this comprehensive look into the literature, it becomes evident what state capitalism is in the eyes of different scientists. As becomes obvious by then, no scientist has so far stringently applied theoretical tools in order to analyze state capitalism. So far, no politico-economic model for state capitalism exists, let alone in an NIE setting.

Basic elements of NIE are then to be included in the subsequent models of market and state capitalism. Here the social order approach of North et al. (2009) with mature natural states as examples of models for state capitalism is integrated as well. In this regard, it will be argued that the relatively lower degree of the rule of law is the most evident difference between state and market capitalism when looking at the institutional framework. Based on this difference other key dissimilarities emerge, helping to explain how constituting factors differ from market capitalism. For reasons of juxtaposition a model of market capitalism is provided as well as a reference model and differences as well as similarities are highlighted.

Concerning bureaucratic capacities and a penchant for industrial policy state capitalist countries differ from market capitalist ones, too. The same holds true in general for institutional divergences. But at the same time state capitalist countries allow for the coordination mechanism of the market with an acceptance of private property rights. These seven elements of state capitalism are to follow from the model of state capitalism. In this sense state is differentiated from market capitalism as well as socialism and thereby an insight should be gained, as to what state capitalism is in the reasoning of this study.

After having differentiated state from market capitalism and developed a taxonomy, these concepts are to be applied to the real world. Therefore, it will be assessed, which countries among upper middle income countries of the World Bank Development Indicators are state capitalist and which ones are not. This approach is chosen for reasons of scope. Taking into account all countries of the world, would exceed the scope of this study by far. As a matter of fact, research (see for instance Bremmer 2010 and Kurlantzick 2016) hints to the fact that state capitalist countries are significantly overrepresented among middle income countries. Then, in an ultimate step based on the idea of different varieties of state capitalism the economic performance of separate state capitalist groups will be compared.

Thus far, there is a short-coming in the line of argumentation. The respective forms of state capitalism are derived from a number of figures and a first qualitative approach. These findings need to be substantiated through a more thorough input. For reasons of scope and space this analysis needs to be confined to a limited number of cases studies with countries from separate varieties of state capitalism. Here the four countries of South Korea from the 1960s to the 1990s, Singapore from the 1960s, Russia and Kazakhstan from the 1990s are chosen.

For this purpose, a qualitative approach for the latter two is chosen with the technique of interviews. A number of experts from both countries will be interviewed and thus a comprehensive picture of the form of state capitalism in those cases should emerge. Interviews clearly display perceptions and views. They are not molded into hard figures. This gives a qualitative analysis the reputation of being rather soft evidence. But overall agents tend to base their decisions on perceptions and views. Second, in a number of cases no documents exist, which refer for instance to bureaucratic quality, for example when it comes to corruption. Third, de jure rules often differ tremendously from how these rules de facto work. Since the trajectories of the developmental states of South Korea and Singapore are very well researched – some even say over-researched – an analysis of the literature is chosen for these two countries.