State-Led Market Economy

The term “state capitalism” was previously used to depict the communist regimes of the former Soviet Union, China, Cuba and North Korea. Today, it can be applied to many governments using state ownership to keep key industries in public hands.’ As discussed in Chapter 1, the role of the state or of the government is one of the seven pillars of capitalism. The government has always a role to play in a capitalist system and no country’s economy is either purely a state capitalist or free market system. But the degree of government intervention varies within each country and fluctuates over time.2 The Economist magazine3 has recently published a debate on state capitalism in which it was suggested that state-led capitalism looks like the coming trend and is becoming a viable alternative to free-market capitalism. Moreover, as the result of privatization policies, an increased range of social services formerly delivered by the public sector are outsourced and provided by private enterprises under the control of the government, in so-called “quasi-markets”. Thus, many public service operations become subject to market-like mechanisms implying a greater market responsiveness of public servants. The question addressed in this chapter is the following: given the flaws of the conventional capitalist model, should the economy evolve toward the state-led capitalism model?