Geopolitics and GLCs

The literature on the Singapore economy has discussed the issue of GLCs and their role in the economy rather extensively.  Most of the works are somewhat polite in their criticisms of the the system.  Outside of academia, the critics have been more vocal, with certain opposition parties calling for the dismantling of the Temasek Holdings system.

Being something of an Austrian School adherent in my economic philosophy, I can see the merits of the arguments.  However, I have also felt that there was some merit in the government's arguments for the need to get involved directly in the economy, and I have also recently argued that dismantling Temasek Holdings will eventually lead Singapore down the path to de facto rule by an unelected oligarchy of business and corporate interests.  As such, I've had a somewhat uncomfortable ambivalence on the issue for a long time.

A different angle presented itself to me recently when I was reading a Stratfor article on American geopolitics.  The author postulated a positive correlation between geopolitical risks and the state involvement in the economic model.  When I read that, the proverbial light bulb in my head was turned on.

Here, I will quote the relevant passages from the article:

As discussed previously, the United States is the most capital-rich location in the world, courtesy of its large concentration of useful waterways. However, it also boasts one of the lowest demands for capital. Its waterways lessen the need for artificial infrastructure, and North America’s benign security environment frees it of the need to maintain large standing militaries on its frontiers. A high supply of capital plus a low demand for capital has allowed the government to take a relatively hands-off approach to economic planning, or, in the parlance of economists, the United States has a laissez-faire economic system. The United States is the only one of the world’s major economies to have such a “natural” system regarding the use of capital — all others must take a far more hands-on approach.

• Germany sits on the middle of the North European Plain and has no meaningful barriers separating it from the major powers to its east and west. It also has a split coastline that exposes it to different naval powers. So Germany developed a corporatist economic model that directly injects government planning into the boardroom, particularly where infrastructure is concerned.
• France has three coasts to defend in addition to its exposure to Germany. So France has a mixed economic system in which the state has primacy over private enterprise, ensuring that the central government has sufficient resources to deal with the multitude of threats. An additional outcome of what has traditionally been a threat-heavy environment is that France has been forced to develop a diversely talented intelligence apparatus. As such, France’s intelligence network regularly steals technology — even from allies — to bolster its state-affiliated companies.
• China’s heartland on the Yellow River is exposed to both the Eurasian steppe and the rugged subtropical zones of southern China, making the economic unification of the region dubious and exposing it to any power that can exercise naval domination of its shores. China captures all of its citizens’ savings to grant all its firms access to subsidized capital, in essence bribing its southern regions to be part of China.

Based on this, I feel that a reasonable argument can be made that given our vulnerable geopolitical situation, the need for state intervention is high, and possibly even evident.

And given the rising risks in our external environment, I would argue that there will be more reasons for state intervention in the coming decade.

But that's for another day.