Invasion by Capitalism - a possible scenario

Economics
1

This is influenced by my experience in the North American mining industry with regards to Chinese state investment. An extreme scenario for sure, but theoretically possible?

Imagine Country A has a strong, booming economy, an internationalist culture and a totally free market. Country B has a planned economy and a clandestine desire for empire-building. State-owned businesses and agencies from Country B start to buy out companies, and buy shares in companies, in Country A.

Eventually these state agencies from B are in control of A’s largest companies, and have considerable influence over the workings of the economy in A. B’s dealings in A have always had a nationalistic undertone, and B now works to lower productivity and gradually shut down A’s economy to reduce A’s economic competition with B, so that B can reign supreme on the world stage. A’s economy is manipulated in such a way so that upstart competition is made extremely difficult, so that B’s control is secured. B’s ultimate aim might be to eventually destroy A.

Is there any defence against this from a totally free-market perspective? Or does it even really matter?

2

Yes. To the extent that country B votes its shares to serve its national interests, it doesn’t serve the other shareholders’ natural money-making interests, as you make clear in #1. The foreign-controlled companies lose money and eventually either go out of business or get taken over. Other companies, perhaps privately held, come into the market to replace them. In the situation you describe, capital flows to privately-held companies that can control who owns their shares.

3

This begs a question: how can the statist economy ever hope to produce anywhere nearly as much as the free-economy does? Unless their sizes were very lop-sided, the free-economy would always out-produce the statist one. So, in real terms, the statist one would never have more control than the free one.

Is there any defence against this from a totally free-market perspective? Or does it even really matter?

The real defense is to have an economy with two features: high growth rates, and high saving rates.

4

Another point: once word gets out that a particular buyer is eager to gain control of a company, its stock price rises to the point people think the buyer will pay. The more expensive the stock becomes, the less the new buyer can afford.

This is the point where somebody says “yes, but what if they kept it a secret?” The answer is: they can’t; getting this kind of information out is one of the functions that capital markets serve. This brings us in turn to the point where somebody says, “yes, but what if they did it through fronts?” The answer is that if somebody is making big buys, the price goes up anyway and the market catches on. I won’t say categorically that you can’t keep a secret, but you can’t keep this secret, when the reward for figuring it out is so great.

You apparently have worked in companies that were, at least in part, Chinese-owned. If it’s not company-confidential, have you seen the investors behaving in the ways you fear?

5

This is influenced by my experience in the North American mining industry with regards to Chinese state investment. An extreme scenario for sure, but theoretically possible?

Imagine Country A has a strong, booming economy, an internationalist culture and a totally free market. Country B has a planned economy and a clandestine desire for empire-building. State-owned businesses and agencies from Country B start to buy out companies, and buy shares in companies, in Country A.

Eventually these state agencies from B are in control of A’s largest companies, and have considerable influence over the workings of the economy in A. B’s dealings in A have always had a nationalistic undertone, and B now works to lower productivity and gradually shut down A’s economy to reduce A’s economic competition with B, so that B can reign supreme on the world stage. A’s economy is manipulated in such a way so that upstart competition is made extremely difficult, so that B’s control is secured. B’s ultimate aim might be to eventually destroy A.

Is there any defence against this from a totally free-market perspective? Or does it even really matter?

You need government force in order to do that.

All the capital that country B poured into country A to acquire companies which they are just going to run into the ground will be re-invested and the sectors now dominated by poorly run B controlled companies would be a prime place to invest that money.

6

Also, the evil plan does not really help Country B in the long term. Buying up the competition to shut them down is an old fear of anti-monopolists, and it is based on actual examples. However, these examples are typically situations where the combination ended up being far more productive than the sum of its parts. So, if country B is doing what people like Rockerfeller and Morgan once did it will help the economy in country A.

7

This is influenced by my experience in the North American mining industry with regards to Chinese state investment. An extreme scenario for sure, but theoretically possible?

Imagine Country A has a strong, booming economy, an internationalist culture and a totally free market. Country B has a planned economy and a clandestine desire for empire-building. State-owned businesses and agencies from Country B start to buy out companies, and buy shares in companies, in Country A.

Eventually these state agencies from B are in control of A’s largest companies, and have considerable influence over the workings of the economy in A. B’s dealings in A have always had a nationalistic undertone, and B now works to lower productivity and gradually shut down A’s economy to reduce A’s economic competition with B, so that B can reign supreme on the world stage. A’s economy is manipulated in such a way so that upstart competition is made extremely difficult, so that B’s control is secured. B’s ultimate aim might be to eventually destroy A.

Is there any defence against this from a totally free-market perspective? Or does it even really matter?

Your analogy forgets that “ownership” is at the mercy of Country A’s government. It’s just a piece of paper in some government office somewhere in County A. Anytime Country A felt like it (viz. there was a military threat) then Country A could just write another name in on those ownership documents. (This is the standard response to, “what if the Chinese bought everything”). It’s also unlikely, for instance, that every one of those companies (which presumably exhibit considerable control over Country A) are staffed significantly with citizens from Country B–obviously it will be mostly domestic workers.

Now, on a moral level, presumably Country B bought those companies from somebody and those people were compensated for it. It would be wrong for all of those sellers to sell, get their money, and then want them back.

However, if it can be objectively proven that B wanted to destroy or otherwise initiate force against A, to the point where the countries were effectively at war, then silly constructs like “ownership” don’t matter.

Another point to make here is that the above scenario would only have a chance of taking place in an extremely simple economy, such as a very small country that only had one real industry. History has in fact shown us some examples, to be sure, of countries having major problems when they heavily rely on a single industry, particularly a single commodity like oil. This problem, however, is just a tendency and is by no means deterministic.

8

Your analogy forgets that “ownership” is at the mercy of Country A’s government. It’s just a piece of paper in some government office somewhere in County A. Anytime Country A felt like it (viz. there was a military threat) then Country A could just write another name in on those ownership documents. (This is the standard response to, “what if the Chinese bought everything”). It’s also unlikely, for instance, that every one of those companies (which presumably exhibit considerable control over Country A) are staffed significantly with citizens from Country B–obviously it will be mostly domestic workers.

Now, on a moral level, presumably Country B bought those companies from somebody and those people were compensated for it. It would be wrong for all of those sellers to sell, get their money, and then want them back.

However, if it can be objectively proven that B wanted to destroy or otherwise initiate force against A, to the point where the countries were effectively at war, then silly constructs like “ownership” don’t matter.

Another point to make here is that the above scenario would only have a chance of taking place in an extremely simple economy, such as a very small country that only had one real industry. History has in fact shown us some examples, to be sure, of countries having major problems when they heavily rely on a single industry, particularly a single commodity like oil. This problem, however, is just a tendency and is by no means deterministic.

I agree that property rights are contextual but that doesn’t mean the concept of ownership is a silly construct. You probably agree with me but I’m just pointing out that this is probably not the best way to convey this idea.

9

I agree that property rights are contextual but that doesn’t mean the concept of ownership is a silly construct. You probably agree with me but I’m just pointing out that this is probably not the best way to convey this idea.

Yes, one had to follow the context of my writing there carefully to follow along. Perhaps a better way of saying might have been, “in a state of war between two countries, property rights between the two becomes silly (or moot is a better term)”. I was trying to convey the silliness of what paper contracts become in a truly military context, and why it’s silly to be afraid be China because they “own” things here. There might be other reasons to be afraid of them, but this is not one of them…