You may consult with Dr. Madhu Acharya of BourneMouth University of UK as he works on ERM (Entreprise Risk Management)

Yea, kindly consult Professor Victor Murinde of Birmingham University. He has some works on the state sponsored capitalism. I hope that will be very helpfu.

I can share with you some information based on information collected at the firm level in India.

I can share with you information about Russia

Thank you for the two references. That is most kind. Dennis I would like more information on India. Of the BRICs it is the country that I have the least experience in. Thank you Dmitry. I have lived and worked in Russia, so I would appreciate any information that you may have that collaborates my own anecdotal evidence.

Can I pose a general question to everyone? Do you think that state-sponsored capitalism is something new and different? Or is it more a evolutionary mutation of trade and subsidy practices promoted by governments that have been going more or less since the East India Company was founded, i.e. promoting national champions, export subsidies, protectionist policies at home, etc?

the case of Chile is very interest, the state subsidizes banks and guarantees a limit state support for the credits. and the anecdotal example is in the political constitution of chile is declare neoliberal, the only country in the world puts it this way.

Hello Prasad, not to misunderstand you, but are you defending protectionism or just saying it exists, so state and non-state players just have to live with this reality?

Of course, strategic assets and/or strategic industries may be off limits to foreign investment or majority ownership, but I am not sure how protectionism benefits a nation, as it is inefficient and makes products and services either more expensive or less available, i.e. supply and demand. While the insidious nature of protectionism to make foreign products less competitive with domestic ones (in your words) is often to protect vested interests, i.e. crony capitalism, at the expense of the consumer, i.e. demand repression.

I would really appreciate your input because this is I think at the heart of the debate of regulated free market capitalism versus state-sponsored capitalism, which may have its role in a developing country, but one that comes at a price, especially as the economy grows and reaches middle-income status. Afterall protectionism to protect domestic industry and import substitution (hello Argentina) is really just mercantilism under a different name.

My fear is that the success of, say, China with its 'capitalism with Chinese characteristics', which has delivered exceptional growth (from a low base) over the past three decades is being used as cover for statist policies in places like India and Russia. The difference being that those policies in India and Russia are not so much to help the country develop quicker, but to protect vested family (India) or inside (Russian oligarchs) interests. This political cover is easy to sell to those that distrust the role markets to begin with.

Although the Chinese Communist Party has a monopoly on power in China, they are fully committed to using the market economy to drive economic growth, create jobs, increase incomes and promote social harmony. China realized back in 1978 that the command and control economy had failed, so they started then to move towards liberalization and the market economy. The results have been 10-percent annual growth for 30-years, and the greatest creation of wealth in history.

However, that does not mean that the Chinese Communist Party does not see an important role for the state in regulating the market economy. The CCP has state-owned companies, as well as strategic stakes in private Chinese companies, but ultimately China uses all the tools at its disposal to promote Chinese companies. Some of those tools are protectionist, while other policies like central bank currency manipulation to remain export competitive upset many of China's trading partners.

By joining the WTO, China commited itself to opening its markets to foreign competition and trading by a set of international rules. That does not mean that they allow laissez-faire capitalism in China. It is a regulated market economy with many sectors or industries still off-limits to foreign investment or competition. However, that does not mean that within China that there is not competition between Chinese firms. When a national champion emerges, Lenova for example, it is usually only after they have managed to conquer the domestic market. Then the state may help them to expand internationally with loans and loan guarantees, but also with their political and diplomatic support.

All countries do this to a greater or lesser degree. Perhaps the only difference between 'capitalism with Chinese characteristics' and a regulated market economy with a large role for the state, France for example, is perhaps the scale of support. This state support is paid for by financial repression in its many forms, which is easier in a one party state like China than in a multi-party democracy where ultimately support for national champions has to be weighed against paying for other social programmes. Also, the CCP with its monopoly on power is more effective at controlling the media and flow of information than in an open social democracy.

Howvever, financial repression to pay for state subsidies encourages investment over consumption, and is therefore a wealth transfer from savers and taxpayers to state-owned or controlled companies. This has served China well in the past, but it has also lead to over-capacity in export lead industries, i.e. ship building, as well as a misallocation of resources within China, i.e. bad lending decisions made to local governments for projects of dubious value.

China needs a new growth model, not a stimulus, Michael Pettis

Link: http://www.ft.com/intl/cms/s/0/98525874-6d0c-11e1-a7c7-00144feab49a.html#axzz1pXvIw5Q1

Who will pay for China's bad loans? Michael Pettis

Link: http://www.mpettis.com/2010/04/06/who-will-pay-for-chinas-bad-loans/

None the less, from a purely economic point of view leaving aside the optics, protectionism does not benefit China nor anyone else. It hinders the mobility of labor and capital as well as restricts access to the transfer of technology and know-how. It protects established firms at the expense of the creation of new firms. Without external competition protected firms do not need to innovate or pass along savings or better service to consumers (another form of financial repression). As for natural resources the government can own them, and collect royalties when they are mined or extracted, but it does not matter who does the work. Most national oil companies, for example, use external contractors to get access to the latest technology and know-how.

The downside of protectionism is that it allows BIC Syndrome - bureaucracy, incompetence and corruption - a place to survive and thrive. And large, protected companies that are politically well-connected, or in strategic industries, are rarely allowed to fail, so they end up being subsidized by savers and taxpayers (financial repression) even if they are inefficent and a financial drain on the state. However, as I said, all countries do this to a greater or lesser degree, so it is a matter of size and scope. It is better to regulate sensitive industries or strategically important sectors of the economy rather than to use naked protectionism. I like to depict these trade-offs as follows:

Physical Reality > Economic Consequences > Social Reaction > Political Response > New Reality > Unintended Consequences > Feedback Loops > Etcetera

Excellent comments, William. The best piece of writing on any topic that I have yet read on researchgate.