Capitalism: not quite dead

The papers these days are full of eulogies of capitalism. Our praised and cherished ideology, economic organization and social order is widely believed as having failed to deliver. We are all almost as sad as if we were in North Korea and Kim Jong Il was announced dead. The financial sector was under regulated and has collapsed. The inequalities are suddenly found have reached unacceptable levels. People all over the world, from placed as unrelated as Egypt, China, and Russia are protesting against their own version of Wall Street, their own symbol of inequality.

But is it the end of capitalism? Or are we burying a corpse that is still alive and kicking? I would argue the latter. What is however, true, is that the system of capitalism, from the poorest to the wealthiest of countries, from the cleanest to the most corrupt, has in many cases turned to the model of "state capitalism". The Economist, with their meaty special report on this issue last week, is not the only one to have picked up on it. Whereas from the fall of the Soviet Union onwards, the whole world signed with relief that communist order and with it the role of the state in the economy was over, the reality is, as often, a slightly more complicated shade of grey.

In the United States and in Europe, the rescue of financial institutions has left the government with huge state-owned assets and their correspondent liabilities. In America, while the Republicans accuse Obama of "socialist policies" for his long needed reform of the Medicare system, should instead take a long look in the mirror and ask themselves who pushed for the creation of Fanny Mae and Freddie Mac (Newt Gingrich who got paid over a million for consulting to the companies), which are now entirely state-owned and do not stand a chance of regaining their private status anytime soon.

There are destinations of known "state-driven capitalism" such as China, Venezuela or Cuba. And then, there are those who have only recently joined the ranks. In Tunisia, the new government had to nationalise over two hundred companies in which Ben Ali and Trabelsi families had illegitimate stakes and has even created a commission to decide what to do with these companies. In Egypt, some confiscations, although on apparently a smaller scale, have also occurred. These developments have officially titled these countries towards the "state capitalism" end of the scale, but the reality is that unofficially, they were there all along.

Interests aligned with the Mubarak and Ben Ali families have been profiting from state contracts since decades. In places such as Lebanon, the state effectively outsources its numerous functions - from telecommunications to electricity provision - to itself. In many cases, the state-owned enterprises which the government refuses to privatise outsource many of their vital functions, which raises about the rationale for their existence. More interestingly, many of these outsourced functions are contracted out to companies owned by government Ministers and other high level officials.

In the nearby Dubai and the broader Gulf region, state capitalism is thriving, despite the blow dealt by the ongoing restructuring of Dubai World. Dubai still owes much (an estimated 10-12 billion USD a year) of repayments to its various creditors, and Abu Dhabi is reportedly not happy, despite the world's tallest tower bearing the name of it's Sheikh Al Khalifa. UAE government owns everything from real estate-companies to taxis, to sharks in the aquarium in Dubai mall, and needless to say - all of the land in the Emirates. Only a tiny sliver of real estate in the Emirates can be owned by foreigners.

Increasingly, governments of GCC, Chinese and other emerging market sovereign wealth funds, are beginning to own some serious assets not only locally, but also abroad, effectively exporting their own breed of state capitalism with all its benefits and disadvantages. One side effect of this is that it is now difficult to tell what is state owned and what is not. Where does the Sheikh end and the official government domain begins is apparently difficult to tell, as have learned all to well Dubai's creditors.

On the other side of the world, in Russia, the political system of organisation, driven by the old politbureau, otherwise known as the KGB, could not be more different than in the Gulf sheikdoms' and yet the outcome is not so different. Since Putin's arrival, the oligarchs have gotten in line with the government and whatever is not operated by the huge state corporations and the spiraling empire of government controlled entities, is operated by the oligarchs which can effectively considered if not as the direct offspring of the politbureau, then their slightly more distant relatives.

And yet, nothing in these systems is different from the gold old capitalism. Money is being made, labour is being exploited, rents are distributed in a very much unequal way. The difference is that, in this new model, the state is part of the capitalist system, in one way or the other, alongside with private sector actors, or sometimes leading the way. Capitalism and statism are no longer mutually exclusive. Officially or unofficially, the buck stops with the government. This is, my friends, capitalism 2.0. For once, and regretfully, Putin may not be wrong.