State companies vs. private companies

Here's an article by David Brooks. I never think his ideas are very well-thought or creative, but this article is a particularly egregious case of blind political cheerleading.

Basically he argues that there are two big camps in world capitalism--the democratic capitalists, and the state capitalists. According to Brooks, democratic capitalism is when there exists a government that does not get involved in private business except to regulate it. State capitalism is when government owns and controls certain companies.

First off, it's silly to oppose these two things as mutually exclusive. We in the US, his prime example of a democratic capitalist country, have certain publicly-run companies. Our federal government part-owns Fannie Mae and Freddie Mac, the old Panama Canal Commission, and now Citigroup and General Motors, and state governments own the lottos. BP, Brooks's other example of democratic capitalism, was part-owned by the British government until the 1980s. Likewise, the "state-owned" companies Brooks cites are not fully so. Companies like Gazprom are only partially owned by their respective governments, with larger or smaller shares of ownership publicly traded on stock markets.

Beyond this, the term "democratic capitalism" seems poorly chosen, though sure to predispose us well towards the concept, because democratic is good. The big businesses that operate within what Brooks calls democratic capitalism are not at all democratic. Those who run McDonald's or Shell or Walmart are not elected by the general populace, and do not represent the interests of this demos. These private companies answer to their shareholders, which comprise a minority of the general populace. So I think it's best to call this elite capitalism, as opposed to democratic capitalism.

One could even argue that what Brooks has deemed "state capitalism" is more democratic than elite capitalism, because the people who run the big businesses are linked to the government, for which they have to respond at least somewhat to the demands of the public. Of course to illustrate his point Brooks cites certain authoritarian countries practicing state capitalism: Russia, China, Saudi Arabia, Iran, Venezuela. Brooks fails to cite Brazil in this list, owner of Petrobras and a relatively normal democracy. But even the other, less democratic regimes Brooks cites have to be more responsive to their people's demands than a private corporation would be.

Brooks seems to be implying that state-owned enterprises are somehow linked to corrupt or authoritarian regimes, but I don't know of any substantive evidence that correlates corrupt countries more with state-owned as opposed to private-owned corporations. For instance, Nigeria is a major oil producer and a very corrupt society, but most of the operators I know of there are private companies. I believe there is a prevalence of state-owned enterprise in Scandinavia, though those countries are known for their transparency.

Brooks then proceeds to make a number of other biased statements. He claims that state capitalism exists to finance the ruling classes. I could cynically parallel this statement by saying that private capitalism exists to finance the wealthy classes. He says that "under state capitalism, authoritarian governments use markets 'to create wealth that can be directed as political officials see fit.' The ultimate motive, he continues, 'is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).'" Once again we see that Brooks is linking authoritarian government and state capitalism. This is an unfair, lazy way to justify his anti-government cynicism, which posits government as little more than a bunch of corrupt leeches looking to milk society for personal gain. But isn't it possible, in fact normal, for elected officials to work for the common good? Do we assume for instance that state- or municipal-owned utility companies (water, electric, etc.) in the US exist purely so public officials can enrich themselves? I think not.

The author also poses such specious questions as: "Should governments be able to tilt the playing field to benefit well-connected national champions?" Stated this way, it seems like a dirty, unfair thing to do, but I don't think most people in the US or anywhere would say that it's bad for local firms to have a priority bid in local affairs.

Another misrepresentation by Brooks is that the world's private oil companies are somehow getting a raw deal. As shown in this article, until 2007 ExxonMobil was the world's largest energy company. Brooks is correct in pointing out that in the last few years the national energy companies have grown and risen in importance, but I don't see the problem in that. It isn't a radical proposition that Brazil's oil belongs to Brazil, China's to China, etc. Also, while Brooks points out that state enterprises sometimes invest in private companies, he doesn't mention that many state enterprises have shares traded on public stock markets, so they too respond in part to Brooks's beloved shareholders.

Brooks closes with a series of platitudes that we can supposedly all agree on. "Innovative companies can’t thrive unless there’s also a free exchange of ideas." First off, I don't know how innovative oil companies need to be these days. Once you've identified a deposit, you just plug in and extract it. But furthermore, there's no reason that a big, clunky company like Shell or BP would be more innovative or free-thinking than a big, clunky company like Petrobras. "A high-tech economy requires more creative destruction than an authoritarian government can tolerate." Again, Brooks is assuming that state-run companies only exist in authoritarian regimes, which just isn't true. "Cronyism will inevitably undermine efficiency." This is true, but I don't have reason to believe that the cronyism generated by private companies (think Halliburton, ADM, Enron) is any less destructive or inefficient than the cronyism of a state company (Gazprom, Petroleos de Venezuela, CNOOC). "State capitalism taps into deep nationalist passions and offers psychic security for people who detest the hurly-burly of modern capitalism." This statement is once again a very cynical treatment of people and their governments. Instead of pathologizing people's aversion to certain private corporations, Brooks would do well to consider that perhaps those who want more national control of resources and wealth distribution are rational, thinking beings. Maybe their support for state-owned companies is a sincere proposal in favor of public accountability of the economy, and not merely a manifestation of "nationalist passions" or a desperate clawing for "psychic security". And what the fuck is "the hurly-burly of modern capitalism"? I'm no writer for the New York Times, but I do have a copy of "The Elements of Style", and it says that if you want to say a particular thing, you should say it. White and Strunk give no injunction to invent vague words when you don't have a fucking point.

Finally, I want to point out a little barb Brooks throws at our democracy and our welfare state at the end of his essay. He claims that democratic governments have "a tendency to make unaffordable promises to the elderly and other politically powerful groups". I presume this is another recycling of the old hackneyed lie that Social Security is not viable (though in Brooks's unclear, say-anything-and-nothing prose, it's not totally clear what he's referring to). Social Security is solvent for something like the next 40 years, and in fact if there have been major unaffordable promises made in the US to powerful lobbies, they are the billions of dollars we throw to the defense industry. And I don't think the domination of government by the defense sector is a problem unique to democracies.

I started this post with the intention to write a clear, reasoned rebuttal to Brooks's article. I hope I've succeeded. But as I've reread his article and written mine, I've gotten more and more angry with Brooks. His article is poorly written, poorly reasoned, full of commonplaces and cliches. It offends me not only as a thinking person who believes in the reasonable role of government and national sovereignty, but as someone who believes in clear, succinct writing. People look to the New York Times for insights and well-reasoned, well-crafted arguments, not for two-dimensional partisan tripe.