- Capitalism said that the free market would provide the best outcome for society, while communism / socialism felt that capitalism had to be tempered and / or that key assets should be owned by the state
- Capitalism said that government should be small, and stick to a few areas of logical focus such as security and foreign affairs, while socialism / communism celebrated government and government jobs as a way to employ the citizenry and achieve social goals
On a parallel scale, the idea that "State Owned Enterprises" (SOE) could be a significant part of the world economy, and compete effectively with private sector companies, became widespread. Let's leave aside the companies that fell into the US governments' hands during 2008-9 like the banks and car companies; I am focusing on the world wide companies, often country "champions", that are in our midst and whose performance has now been hit with the usual causes of failure of these sorts of entities, including:
- Politically motivated investment
- Forced government subsidies or protectionist behavior
The "poster child" for this negative outcome is Petrobras, the Brazilian oil company, which is 64% owned by the state. Petrobras was briefly the 4th most valuable company in the world after their 2010 IPO; now it is barely in the top 100. Petrobras hits all these typical failure points with a vengeance. The government forced them to purchase goods and services from inefficient Brazilian suppliers, subsidized their citizens with Petrobras funds, pushed them to invest in deep offshore finds which were risky relative to the company's capabilities, and finally just engaged in simple corruption to fund their political party candidates. All of these actions weakened the company and now a downturn in oil prices and a heavy debt load put the company in a seriously bad state.
In China, the role of the SOE has been declining and the role of private sector companies is on the rise; case in point is Alibaba which listed in the US and has been a smashingly successful IPO. Russia represents the other end of the spectrum; formerly robust private companies in the Internet sector have been weakened by state controls and the SOE's like Rosneft and Gazprom have lost 60% of their value over the last 5 years.
One of the most important "back to basics" points that we can make about economics and use for talking points and education remains that
Capitalism is the most effective economic solution and raises the wealth and happiness of its citizens more than any other alternative.
Government jobs and careers cannot exist on their own; they need to be supported by a vibrant and effective private sector and as government laws and regulations, designed to meet social objectives, strangle business, the entire society suffers. For years' the US had a smaller governmental sector than our competitors, but today that isn't the case when we face competition from Asia and elsewhere. Our European competition is barely relevant; the few world class companies there are predominantly global entities with operations everywhere.
As kids spend their years volunteering and working with non-profit groups and entities either part of the government or a virtual offshoot (education), they begin to ignore and take for granted the critical role of the private sector. As countries get used to the performance of SEO's and all their usual failures, they forget that the actual cause of most of those failures is the role of the state as an investor in the first place.
We need to take back the narrative on the economy from those that look at just "consumer spending" and "job creation" capabilities of the government; this sort of debt fueled and tax strangling approaches will ultimately kill the power of the private sector. We should also praise all the innovations that come from the markets; everything from your iPhone to the cheap TV to new drugs to all new capabilities built into every car. The social networks you follow, the food you eat, and the fact that the prices for most of those things outside the significant influence of government that fall every year. You can contrast this with the rising costs of education, higher taxes, and general ineptitude that you see when dealing with government or socialistic enterprises.
Cross posted at Chicago Boyz