Monday, November 10, 2008

State Capitalism in China

The Chinese ruling class has taken a decisive step towards a more aggressive form of state capitalism, announcing a massive plan to spend nearly ten percent of GDP on an infrastructure, social welfare, and public works plan. The plan is designed, among other things, to bolster consumer spending in the face of falling exports.

This kind of move seems to me to be the next step beyond the kind of financial state capitalism we saw spreading last month. As European governments moved to ensure larger and larger amounts of bank's deposits, either through forced equity or nationalization, the US government was forced to do the same in order to stave off a mad rush of deposits to the now safer European banks. Whether China's move will force a similar scramble globally seems unsure. In the United States at least, there is a sedimented attitude in the ruling class that aggressive spending is, at the moment, out of the question. Yet China's move to preserve its buying power surely puts pressure on the US to do the same, lest the tremendous importance of the American market in the global economy diminish.