Bo as Emblem of State Capitalism

by Chidem Kurdas

The fallen Chinese political chieftain Bo Xilai and his wife are starting to sound like a bizarre combination of Macbeth and his Lady, the US Department of Housing and Urban Development and Fannie Mae—yes, the government created and backed housing finance entity.

Under the leadership of the Mao-admiring “new left” Mr. Bo, the fast-growing city of Chongqing built extensive public housing. Apparently the local government  created investment vehicles to finance its various projects, issuing bonds with land as collateral. The WSJ reports that analysts regard this debt as increasingly risky

The central authorities in Beijing are investigating billions of dollars spent under Mr.Bo’s aegis. He is accused of “serious disciplinary violations’ and his wife Gu Kailai is in custody for the death in Chongqing of Neil Heywood, a British associate of the family. He expressed fear for his life in his last days and may have been poisoned.

In addition, Ms. Gu is suspected of illegally moving money outside the country, reportedly a widespread practice among Chinese bureaucrats.    She and Mr. Heywood are said to have been in conflict over business matters but it has also been reported that they had an affair.  Mr. Heywood threatened to expose Mr. Bo’s corruption, according to one rumor. Ms. Gu is said to have psychological problems—one is tempted to imagine a Chinese Lady Macbeth washing the (metaphorical) blood off her hands.

Ms. Gu and the populist Mr. Bo, both scions of revolutionary heroes, belonged to the communist aristocracy. Their high-living son, a member of the younger generation known as princelings,  went to an exclusive boarding school in England and reportedly drove a red Ferrari in Beijing.  Attending Harvard, he was living in an apartment building with concierge services.

You could pile up the details suggestive of massive corruption.  But sensational as the story is, this is not just a matter of a few bad apples. This not an isolated incident. Corruption is inherent in the system sometimes called state capitalism, where the government controls major industries and markets but allows and allies with private businesses in other areas. Russia, another example of the system, is rife with corruption.

The more a government meddles in the economy, the more opportunity it creates for corruption, though typically the goals for meddling sound worthy—thus Mr. Bo built housing for low-income people. Politicians, officials and their business allies always find ways to benefit from the government’s control or influence on economic activity and resources.  

Ludwig von Mises pointed out the necessary consequence of growing government intervention in America and Europe, back in the early 20th century. He wrote that while “It is true that the officeholders are no longer the servants of the citizenry but irresponsible and arbitrary masters and tyrants,” this was a result of the government taking on more and more tasks.

So Mr. Bo & family are a symptom, not the root cause of corruption. Throwing him out of the communist governing apparatus will not change the system and hence have little impact on the corruption.

The issue is not confined to China, Russia, or Argentina, which is now extending its state capitalism by nationalizing an oil business.  Closer to home, there is HUD and the perennial scandals it generates, including a recent one at a subsidized housing authority.   And the burden Fannie created for American taxpayers outclasses bonds issued by Chongqing government vehicles any day.

9 thoughts on “Bo as Emblem of State Capitalism

  1. this is like “To see the straw in your brother’s eye, and not the rafter in your own.” To create wealth great mass coordinated social systems are needed (not only very big factories)… ergo hierarchies… liberal ideology is ideology.

  2. “Corruption is inherent in the system sometimes called state capitalism, where the government controls major industries and markets but allows and allies with private businesses in other areas. Russia, another example of the system, is rife with corruption.”

    As the article points out, our HUD and Federal Reserve illustrate the same creeping state capitaism and corruption here at home. Think of the bailouts, Goldman Sachs running the Treasury Department, the House Banking Committee encouraging sub-prime mortgages, Solyndra, subsidies to select cronies, etc. Power corrupts! Big government is inefficient, sure, but it is the corruption that compounds the disasters

  3. SocialPatterns:
    Re “To create wealth great mass coordinated social systems are needed”
    Right, and markets are the most efficient coordinators.

    Even the Chinese Communist Party has realized how useful markets are. Allowing some private markets — though not really free — has led to fast economic growth in China.

  4. Bill Greene–
    Re “creeping state capitalism”
    That’s a great way to describe the process.

  5. Speaking of state capitalism, could there be a discussion of the Wal-Mart bribery case here?

  6. Hi,

    Great site! I’m trying to find an email address to contact you on to ask if you would please consider adding a link to my website. I’d really appreciate if you could email me back.

    Thanks and have a great day!

  7. A good book on the origins if state capitalismo in the U.S. is Richard White, Railroaded: The Transcontinentals and the Making of Modern America, which I’m reading now.
    It has to be read to be believed.

  8. […] Given the government’s track record, it is absurd to presume the financial system will function better under more government tutelage. What will happen for sure is greater government control over the economy, moving the United States closer to state capitalism—not really a Jimmy Stewart world, more like a Mr. Bo world. […]

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