Liberal capitalism VS State capitalism

My father once told me an anecdote that he experienced during his service time at the Eighth United States Army in Seoul, Korea. Between the barrack and canteen, there was a small area of woods and the two buildings were connected by a walking path that was built around the woods. One day, a soldier spoke to an officer suggesting to create a path that would cut through the woods so that it would reduce the commute time between the two buildings. The officer agreed and soon a new path was created. This event was striking to my father (as well as to other few Koreans who were serving at the US Army) because such requests would have been easily dismissed in the Korean Army. Even worse, depending on the officer’s mood, the soldier in the Korean Army could have faced raps, with full gear weighing close to 100 pounds, at the parade ground for questioning how the camp was designed. In other words, liberal thinking, regardless of its merit, would have been suppressed in the Korean Army and the entire soldiers in the barrack would have paid the price by taking the sup-optimal path to commute between the two buildings.

This is because Korea’s economic and social model in the 70s was closer to today’s Chinese State Capitalism than it was to the America’s Liberal Capitalism. Such model worked well but fortunately for Korea, America’s influence was larger (and Korea was never really that big to build its own system) and hence it was never going to give up the transition into today’s liberal state (my short piece regarding this here).

China, on the other had, is different. It is the 2nd largest economy in the world with an ambition to prove the world that their way of State Capitalism is superior to that of the America’s Liberal Capitalism. To China’s credit, they have done well to date but as the the Army anecdote shows, its model is starting to show its limitations. One such example is the recent cancellation of Ant Group’s IPO, two days before its launch date of 5th November, on the Shanghai and Hong Kong exchange. The Chinese authority’s official explanation for cancelling the IPO was because Ant Group “may not meet listing qualifications or disclosure requirements” but many, including myself, believe it is because of Jack Ma’s outspoken streak that made members of the Chinese Politburo (including Chairman Xi) uncomfortable. Ironically, such decision by the Chinese government does not bode well with its intention of promoting its State Capitalism model because Ant Group’s IPO was set to become the largest IPO in history, making Ant Group’s market cap to the north of $300b (it as oversubscribed 800 times and had to close its subscription book a day earlier than planned).

Interestingly, similarities can be found between the cancelled IPO and the Army anecdote. In both events, a central authority suppressed an individual’s (or private) intention that would have created a better path for the public and instead settled for the sub-optimal solution. If China wants to move beyond its current status and convince the world that its model is the future, the fastest way would be to show that it is beating the incumbent champion regardless of which rule the game is played and not by showing how things are done their way.

*Recommend reading an article from The Economist on their perspective of how China’s State Capitalism is controlling private businesses: The intimidation game.



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