How Statism Keeps Poor Countries Poor

 

Acton University Talk by Stephen L.S. Smith of Hope College.

STATISM is an economic system (also called State Capitalism) which allows a private sector but in which many key industries are owned/controlled by the government.

It lies somewhere between communism and European-style social democracy on the economic spectrum.

Smith says we need a “field guide” since most statism is invisible to the casual observer.
So he took us to THAILAND via a slide show.
  • Banks: Easy to use, modern banking all over the place.
  • You need to buy a SIM card for your phone from “AIS.”
  • Transportation (air and rail) is top notch.
  • You have to leave Thailand (flying to the US) at 4am (because of the time change/dateline), and you stay in a Novotel by the airport for a few hours of sleep first.
But in fact….
  • The bank I used (TMB), upon some research is the Thai Military Bank. The army runs it. At a loss. The Siam Commercial bank is owned by the ministry of finance.
  • AIS (SIM card) is subcontracted from the Thai government to the Singapore (!) government, which sells the chip to you.
  • Both the state owned railways and airlines (each) lose over $1 million a day. Many new airliners are mothballed (over capacity). Unused capital (see the new ghost cities of China) is typical in a statist system.
  • The Novotel is owned by the government and just operated by Novotel.
So what?
  • Statism is the default system in the Global South. There are exceptions, but this seems to be the rule.
  • It is almost invisible at the street level, but has major consequences.
  • The government not only issues currency, but controls the flow of it–limiting investment which would compete with state businesses.
  • Very little revenue is left over (because government firms lose so much money) to lend to medium and small businesses. This leads to a growing black market with lots of informal street vendors. They don’t pay taxes which compounds the cycle; with a downward drag on the society.
  • Common in statist societies is weak rule of law and questionable property rights.
  • Insiders and elites benefit, which opens up patronage politics.
  • The highly educated urbanites benefit from statism because of the need for them running these bureaucratic businesses, which put a premium on education and connections.
  • Neglect of core state functions (governments are limited in capacity and spend their time running industries) such as rule of law, civil justice, non-corrupt police, property rights, basic education, and rural infrastructure.
  • State banking skews prices and and natural interest levels. Interest rates are set at a below-market level, discouraging saving. Most people want to save short term and pay off loans long term (People want fast access to their savings). Setting interest rates at an artificially low level creates tension in this natural supply/demand situation.
  • Lending is directed to favored insiders with big projects.
  • Capital is wasted (ghost cities of China where no one lives) because natural market forces are not the primary driving force of construction. State-owned firms serve political ends first.

  • Developing countries have more frequent bank failures, even with the “security” of state ownership.
  • Some countries have it way worse than Thailand. Pakistan and Egypt may be the worst. The Petrobas scandal in Brazil brought down the government.

 

Hamilton and Jefferson–Beyond the Musical

 

No one can get tickets to the Hamilton musical, but we can get the book and learn how their relationship affects us…

Each was a colossus whose footsteps color our daily lives…

Lecture by John Pinheiro from Aquinas College given at #Acton2017.

 

We can look at Alexander Hamilton and Thomas Jefferson through two lenses:
  • Lived Experience. How their lives and upbringing affected their philosophy.
  • Philosophy and Principle. Whom they were reading and by whom they were influenced.
LIVED EXPERIENCE

JEFFERSON: Born into a planter aristocracy. Mother’s family (the Randolphs) were stratospherically rich and remained his main patrons throughout his career. Father was an educated aristocrat.

Jefferson had a solid classical education and even spoke 8 or 9 Native American languages. In 1775 he was one of the wealthiest men in America and had 200 slaves.

HAMILTON: Very broken home in the Caribbean. Worked hard as a clerk and got a scholarship to King’s (Columbia) in NYC. John Adams called him the “bastard brat.” Saw the bad side of people and slavery. Felt that we needed order and control to curb this.

PHILOSOPHY and INFLUENCERS

JEFFERSON: The French Enlightenment. People naturally good unless corrupted by commerce. Yeoman farmers are the key to freedom because they don’t have employers. Thus, have a small and weak central government and an agrarian paradise. Disperse the population westward. Emmerich de Vattel’s The Law of Nations influenced Jefferson–how sovereign states can participate in a union. Jefferson always used plural verbs and pronouns with “United States.” The Physiocrats (France) also influenced Jefferson. They stressed agriculture and coined the term “laissez-faire.” Land is the source of all wealth.

HAMILTON: The Scots Enlightenment. Especially Adam Smith. Looked not to France, but rather the British Empire. Always accused of being a royalist. Capital and division of labor, not land, are the source of wealth. Bernard Mandeville wrote the Fable of the Bees, which influenced Hamilton. Where do you look for a financial model? London! Protective tariffs. Centralized bank. Financed national debt a good thing. Hard work and ambition, not inheritance, is the path to power and wealth.

Conclusion

Jefferson and Hamilton continue to be the twin pillars of American social, political and economic thought. Jefferson’s party won most of the elections for the next couple of generations. His expansionist/agrarian vision led to the purchase of Louisiana. Enhanced by Jackson and Polk who steamrolled the country to the Pacific with “Manifest Destiny.” Homesteading and the checker boarding the Midwest USA are monuments to this thinking.

Hamilton won the economic battle however, with New York being a second London in terms of global finance, and the industrial north beat the agrarian south in the Civil War. Lincoln was a Hamiltonian and used his principles to further unite and solidify central authority.

Both believed that a virtuous society is necessary to maintain a republic.