Nicholas Lardy is interviewed about his new book, Markets Over Mao. (HT Tyler Cowen) A slice:
You argue that China’s state-owned enterprises don’t have the power that their opponents say they do. What’s your proof?
SOEs appear to be a relatively small portion of the Chinese economy. They account for between one-third and one-quarter of GDP. But in manufacturing, SOEs only account for 20% of output. In some parts of the Chinese economy, the private sector has largely displaced state companies.
You also say the notion that China flourishes because of “state capitalism” is outmoded. Why?
State capitalism means a high degree of state ownership of production, a great deal of control over investment, a great deal of control of the banking sector and a very substantial use of industrial policy. I don’t think the term ‘state capitalism’ fits China very well because its industrial policy has been an almost complete failure.
The return on assets of state firms is plummeting. It was around 3.7% in 2013, which is less than half the cost of capital.
So how would you characterize the Chinese economy?
It’s more accurate to think of it as a market economy. The role of the state has diminished dramatically from where it was 20 to 30 years ago. When you look at the number of people employed by the state, it’s less than France as a percentage of the labor force. China’s not a pure market economy, but it’s very hard to find pure market economies these days, especially given the recent history of the financial crisis and the degree of government ownership (that resulted from actions of the U.S. and other governments to limit economic damage).
Tim Worstall brilliantly uses Mr. Darcy’s income to expose a fundamental flaw in Thomas Piketty’s inequality thesis. (HT Amir Weitmann) Here’s Tim’s conclusion:
In the end my point is simply that if one of the great 19th century estates had remained in the likely investments of the 19th century investments it would by now be about equivalent to the annual income of a middling Premier League footballer of perhaps less than minimum wage. This isn’t notable evidence that great wealth manages to preserve itself nor that it becomes ever more economically important.