The competition between capitalism and communism has morphed into a whole new scenario, one in which the US, the principal espouser of "free market" capitalism has voluntarily - due to its trade policies and energy consumption - placed itself in hock to "communist" nations, which are communist in name only, having morphed into a new form of capitalism: state capitalism. Thanks to policies started under Ronald Reagan such as deregulation, free trade and subsidies and tax breaks for big oil companies, other nations have accumulated huge war chests known as sovereign wealth funds (SWFs). In the meantime, the US has run up a $10 trillion national debt and has initiated policies which have resulted in one financial fiasco and meltdown after another, only the latest being the sub-prime mortgage mess. While the US espouses capitalism, the reality is that the government runs on a policy of corporate socialism: tax breaks and subsidies for wealthy corporations, bailouts for large corporations and banks, legislation that favors the phamaceutical and oil industries etc. The US taxpayer is on the hook for some of this. Other bailouts are arranged by the government but actually come from SWFs. Citibank recently was bailed out by Singapore's soverign wealth fund. SWFs stand ready to bail out US corporations in exchange for an equity stake, having tired of US Treasuries. They're also starting to buy US real estate including such landmarks as the Chrysler and Helmsley buildings in New York City.
The US has gone from the world's largest creditor nation to the world's largest debtor nation in just a few short years and routinely goes begging to rich countries like China and Saudi Arabia for bailouts. It all started with Ronald Reagan and his tax cuts resulting in huge budget deficits which added to the national debt. The US has gotten dumb and the communist countries and assorted dictatorships have gotten smart. But some western countries like Norway have gotten even smarter fully integrating its sovereign wealth fund with its central bank and using the largesse to support its citizens. The US' problem partly is that it doesn't even have a central bank, the Federal Reserve being privately owned. As such it's function is limited to regulating the money supply, and by its very nature it can't be a repository of wealth like Norway's central bank can, for instance.
It didn't have to be this way. Jimmy Carter in 1970 put solar panels on the roof of the White House and tried to change the US energy policy. Ronald Reagan promply took them down when he came into office. The Saudis and other oil rich nations including the formerly communist Soviet Union (now Russia) have accumulated their war chests (SWFs) by selling us oil. Norway, a western non-communist nation, has a SWF with money accumulated from selling oil which it actually uses to provide its citizens with pensions and to counterbalance budget deficits in other parts of its national expenditures. China has a $200 billion SWF accumulated by selling the US cheap goods. The US has been dumb enough to run huge trade deficits with China. It doesn't take a rocket scientist to figure out that if I sell you a dollar's worth of goods and you sell me 50 cents worth and we repeat this transaction over and over again, you're going to end up owing me money. It's as simple as that.
As the espouser of free market capitalism, the US has ended up essentially not with free market capitalism but with corporate socialism in which various private corporations use the state as a tool for furthering their own interests. The state, on the other hand, as it facilitates the enrichment of corporations while undermining its middle class, has not taken on the role of wealth accumulation as other countries have. Instead the US central government has financed itself in the traditional manner by taxation, and, since it is controlled by wealthy private interests, it has only lowered taxes thus driving up deficits and debts. It has not been fiscally prudent or responsible. With no other means of accumulating wealth, it has only run itself into debt. If it had natural resources such as oil that it could sell to the rest of the world or if it had manufactured goods that it could sell to the rest of the world or if it hadn't overreached itself militarily by supporting the world's largest military-industrial complex or if it had raised taxes to cover expenses, the present situation might not have occurred. But then all resources in the US are under private corporate control so there is nothing that would serve as a source of national wealth. Contrast that with Norway in which the state has a 50% interest in all oil sales. That still leaves 50% for Big Oil. For the US, however, 50% is not enough. the US gives essentially all the profits from oil finds on its property to Big Oil. Other states share the profits among their citizens and private enterprise. The US essentially has a weak central government controlled by lobbyists representing corporate interests. The US government itself, supposedly a democracy, does nothing to accumulate wealth in behalf of its citizens the way other nations do. Even Kazahkstan, the butt of the movie Borat's jokes, has a SWF. Kazahkstan may get the last laugh while the US has to eat crow. Are you ready for Borat, the sequel?
On the other hand, China, for example, or even Norway, has a much stronger central government than the US. The communists do not try to micromanage their economies any more, but they retain control over the "commanding heights" by setting overall policy, something the US does not do intelligently. Instead the US lets a swarm of lobbyists each pursuing their own special interests effectively set economic policy for the US in a piecemeal, hodgepodge manner. The result is an incoherent jumble which profits US (now global) corporations, but weakens the US and its citizens as a whole. The US, comprised of a bunch of special interests, has no interest in providing for the good of its people (the general welfare as the Constitution says), only in lowering taxes on corporations and the wealthy. The denouement is that countries with strong central governments both communist and non-communist are able to set policies which result in their nations' accumulating wealth which then can be at least partially distributed to its people. Sometimes it's just a few crumbs from the table, but that's not very different from the US supply side, trickle down economics. Qatar, for instance, uses its oil wealth to help its citizens attain a high standard of living. The communist countries like China have left economic production up to private enterprise but have retained central control of the commanding heights especially in the accumulation of capital. This is why they represent state capitalism. The SWF is the tool with which communism or state capitalism outcompetes the "free market" or corporate socialist economies such as the US. And it is also the tool with which capital formation can be used as a source of welfare for their people. The US with no strong central government exists primarily for the enrichment of private interests, and, therefore, is not in a position to offer comprehensive overall policies such as universal health care which would benefit its citizens. In fact universal health care would only be to the detriment of the private health care industry which accumulates tremendous profits. The self interest of US corporations has led to the US' impoverishment as a nation.
Meanwhile dazzling new office blocks and swanky Ritz-Carlton and Four Seasons hotels are sprouting out of the sand to cope with all those who want to do business here. In the suburbs of Doha you can drive for miles past the shells of mansions being hastily — and lavishly — thrown up to meet demand for homes that would dwarf those in even the most affluent pockets of America.
The 150,000 Qataris enjoy their prosperity. The per capita GDP is more than $20,000, comparable to much of Europe. But Qatari citizens receive many extra benefits from the Government, including a plot of land and a $180,000 interest-free loan towards a house, which the Government builds to the owner’s designs. Water, gas and electricity are free and each homeowner gets a $15,000 gift towards furnishing his home.
Qatar has a remarkable welfare state; citizens do not pay income tax but still receive free education and healthcare, even if it means being flown to Britain or the US for an operation. With petrol so cheap that a luxury car can be filled for a few pounds there is really little to worry about, except the blistering hot summers when the temperature can reach 50 degrees. Many Qataris have solved that problem by buying summer homes in Europe and America.
As far as the US criticism of China as a "one party system," the US is a one and a half party system at best. The Republicans have set policy for almost 40 years. Even Clinton governed as a Republican. It was under his administration that NAFTA and the repeal of Glass-Steagall took place. The Democratic party is at least half in the pockets of the corporations. The Republican symps in the Democratic party are known as "Blue Dog Democrats." No wonder they have been ineffective in getting the liberal agenda passed even though they have a majority in both houses of Congress. Half of them vote with the Republicans! The 2008 election is critical because it will determine whether or not there will be a change in direction for the US or whether it will continue down the same road started by Ronald Reagan and continued by the Bushes, the road of corporate socialism.
Let's consider the example of Norway in greater depth. Norway's SWF is essentially an endowment which spends the return on investment (but not the principal) on its citizens' welfare. This is what any prudent capitalist or wealthy person does. Only stupid people spend the principal itself. Intelligent people spend the return to capital. Thus rents, dividends and interest represent the return to capital. Refinancing your house represents spending the capital or principal itself. Norway's central government has fully integrated its SWF into its national budget so that future generations in perpetuity will enjoy the largesse thereof. The US has accumulated a huge national debt such that future generations of taxpayer/debtors will be required to pay it off. They are similar to the ones that refinanced their houses to support their lifestyle. Instead of passing on wealth to future generations such as in the case of Norway, the US will pass on debt to future generations so that wealthy people and corporations of the present generation can get even wealthier. Presumably, they will pass on the wealth to future generations of their own families thus creating an oligarchy. The following explains the exemplary features of Norway's SWF.
Norway's Government Pension Fund-Global (GPF) has a number of exemplary features that could serve as a model for other SWFs. The GPF is one of the largest and fastest-growing SWFs in the world, with total assets amounting to $373 billion at end-2007, or close to 100 percent of Norway's GDP. But size aside, the Norwegian GPF is mostly known for its features, which in many ways are considered best practices by international standards:
• The GPF's stated aim is to support government saving and promote an intergenerational transfer of resources. The fund facilitates the long-term management of the government's petroleum revenues. Given the expected population aging in Norway, it serves to pre-fund public pension expenditures.
• The GPF functions as a fiscal policy tool, which, together with the fiscal guideline, serves to limit government spending. The fund's capital consists of revenues from petroleum activities. The fund's expenditure is a transfer to the fiscal budget to finance the non-oil budget deficit. The fiscal guideline, introduced in 2001, calls for a limit on the non-oil structural central government deficit of around 4 percent of the assets of the GPF. Since 4 percent is the estimated long-run real rate of return, this rule amounts to saving the real capital of the fund and spending only its return (akin to an endowment fund).
• The fund is fully integrated into the budget.The net allocation to the fund forms part of an integrated budgetary process. This process makes transparent the actual surplus of the fiscal budget and the state's use of petroleum revenues.
• It pursues a highly transparent investment strategy. The Ministry of Finance—the fund's owner—reports regularly on the governance framework, the fund's goals, investment strategy and results, and ethical guidelines. The Central Bank—the fund's operational manager—publishes quarterly and annual reports on the management of the fund, including its performance and an annual listing of all investments. Detailed information on the fund's voting in shareholders' meetings is also published.
• Its assets are invested exclusively abroad. This strategy ensures risk diversification and good financial returns. Moreover, it helps to shield the non-oil economy from shocks in the oil sector, which can put pressure on the exchange rate (so-called "Dutch disease" effects). The GPF has small ownership shares in over 7,000 individual companies worldwide (the average ownership stake at end-2007 was 0.6 percent, against a maximum allowed of 5 percent).
• Its high-return, moderate-risk investment strategy has been hitting the mark. Currently, the fund is adjusting its portfolio to its new strategic benchmark of 60 percent of assets in equities and 40 percent in fixed income. There are plans to move gradually into real estate, to improve the risk-return tradeoff. The investment strategy has produced a healthy 4.3 percent average annual real return during the past decade.
Here's another reference that explains the relationship between Norway's central government and the oil companies. If the US made oil leases contingent on the oil companies' sharing the profits with the American people, the US might be able to (1) provide for social security as Norway has done and (2) pay off its $10 trillion national debt. The US could follow the Norwegian model of state capitalism combined with socialism for its citizens, but prefers to follow the model of corporate socialism combined with "fend for yourself" capitalism for its citizens. The results are clear. Norway has the highest standard of living of any country in the world.
For the last four years the United Nations (UN) has ranked Norway as having the highest standard of living in the world. This annual ranking is based largely on average levels of education and income, combined with expected length of lifetime, but also factors like human rights and cultural freedom. Norway is weighed high for its high literacy rate in addition to educational levels and material wealth.
Since 2001 Norway has ranked number one six times in human development, which combines life expectancy, literacy, educational attainment and GDP per capita, edged out only by Iceland in 2007.
