It is too simplistic to say that economies
around the world converged as capitalistic after the collapse of the Soviet
command-and-control economy. Even the notion that China’s communist party has
embraced capitalism does not do justice to the ways in which China’s capitalist
system is unique. This became particularly apparent in early July 2015, when
the bubble burst in the Chinese stock market.
Already down by more than 30% since early
June 2015, the benchmark Shanghai Composite Index lost another 5.9% on July 8,
2015 and Hong Kong's Hang Seng index closed down 5.8 percent.[1]
Hundreds of companies halted trading in their stock after emergency measures
announced by the central government the previous weekend failed to stop the
rout. The measures themselves are particularly noteworthy, for they illustrate the
unique way in which capitalism under communism regards property rights.
The Chinese government directed “state
companies and executives to buy shares, raised the amount of equities insurance
companies can hold and promised more credit to finance trading.”[2]
On July 8th, the Cabinet agency that oversaw China's biggest state-owned
companies said it had told them to avoid selling shares and to buy more
"in order to safeguard market stability."[3] Ordering
companies and their senior managers to not only not to sell stock, but also buy
more, runs against the assumed linkage between economic liberty and property
rights. Because the managers of state enterprises are essentially state
employees, the government’s encroachment on freedom to buy and sell assets is
mitigated.
However, “(i)n a separate order, the
securities regulator told directors, executives and senior managers of publicly
traded companies who have sold shares in those companies within the past six
months to buy them back and said they are barred from selling. It said they are
required to buy more if the price falls by more than 30 percent in the next 10
days.”[4]
Here, the government reaches individuals receiving money from private companies—albeit publically traded ones having charters
granted by the government.
To force people to buy and sell assets does
not mean that their respective markets are replaced by a Soviet-style
command-and-control economy. Changes in supply and demand still affect pricing.
The value of an asset of which some of its buyers and sellers have been forced
to buy or sell is at an intersection of a supply and demand that does not
reflect preferences and thus utility curves—not only for the given asset, but
also, moreover, for economic liberty in being able to make and implement
purchase-decisions. Put differently, the preference of the government, both
regarding the asset-class and control, is also in the mix.
Because the individuals ordered to buy
rather than sell stock in their respective companies owned the stock, private
property is cleft from control pertaining to the buying and selling of the
stock. Were the purchased an asset usable, such as a car, the owners could
still control that sort of use, so economic liberty is not lacking; rather, it
has been restricted. We can conclude, therefore, that private property and
private markets can exist and function even when economic liberty is limited.
In 1932, Berle and Means wrote a book
pointing to the separation of (stock) ownership and (managerial) control in
American corporations.[5]
The control here pertains to policy decision at the corporate level. In the
Chinese case, the control at issue pertains to being able to buy and sell
stock; such control remains intact in the American system of managerial
capitalism.
The Chinese government’s order may seem
counterintuitive not because ownership
is distanced from control, but, rather, because of the type of control—that
over buying and selling rather than use per se. Moreover, the order calls into
question earlier academic predictions that the fall of the U.S.S.R. and China’s
adoption of capitalism would lead to a singularity or isomorphism of the
world’s economic systems. Simply changing what
is to be controlled separately from the ownership can make an economic
system look quite different. Lastly, this case demonstrates just how
interlinked political and economic variables are. The twentieth century
witnessed empiricism take hold both in economic and political “science”—the
reductionism itself distancing the two disciplines from each other.
1. Joe
McDonald, “China
Stock Market Plummets As Sell-Off Continues,” Associated Press, July 8,
2015.
2. Ibid.
3. Ibid.
4. Ibid.
5. Adolf A. Berle and Gardiner C. Means, The
Modern Corporation and Private Property (New York: Macmillan, 1933). The book's theme is the separation of
ownership from control of the modern corporation and its consequences. Berle
and Means point out the divergent interests of directors and managers, and of
each of these from the owners (i.e., stockholders) of the firm.
