China’s Ministry of Railways’ Inefficiencies and Bloated Bureaucracy represents State Capitalism at its Worse

Posted by PITHOCRATES - February 5th, 2012

Week in Review

Big Government liberals in the U.S. say state capitalism is the way to go.  And high-speed rail.  Just like the Chinese.  In fact, they can’t get enough of what the Chinese are doing.  Because they say the Chinese get capitalism right.  By putting ‘state’ in front of it.  Instead of what we normally see in front of it.  Free market.  But their big state funded rail system is far from perfect.  Far, far from perfect (see China’s push for rail reform could be dead in its tracks by Michael Martina posted 2/2/2012 on Reuters).

The ministry’s touted web-based ticket booking system was supposed to replace the antiquated ordeal of waiting in long queues. It didn’t. The system crashed minutes after its launch before the annual holiday migration of 200 million people by rail, and proved as frustrating as any line-up at a station…

The online fiasco — which spurred a barrage of criticism — was the latest in a litany of troubles for the ministry, which has been plagued by scandals and missteps. Some of those problems have been deadly, including a July crash of a new high-speed train that killed 40 people.

But for decades the Ministry of Railways has proven impervious to reform efforts, fending off attempts by leaders to merge it with other ministries or close a separate court system run by the 2.1 million-employee ministry…

The current reform drive could also stumble, said Zhao Jian, a rail expert at Beijing Jiaotong University who has criticized China’s expensive bullet train expansion. For one, the ministry’s $2.2 billion debt load could deter any splitting of its business and regulatory arms.

“If you separate the government function from the business function, the transportation enterprise must take on the debt. But if the debt is so great that the enterprise will immediately become bankrupt, then who will take it on?” Zhao said.

The problems of state capitalism are plain to see.  You have a 2.1 million public sector bureaucracy.  Who speak with a loud and unified voice and could play havoc with the system if they don’t get their way.  And public spending so great that nothing in the private sector can manage the accompanying debt.  No amount of ticket revenue can fund current operations and service this debt.  It’s just impossible.  Which means it can’t be spun off from the government.  Because only government funding (taxes, borrowing and the printing press) can support this behemoth.  Because large-scale rail like this is just not a viable economic model.  Which means it will never be reformed.  And it will always remain a fiasco.  Until it and the state finally collapse.  Sort of like in Greece.  Only without anyone large enough to bail them out.

And this is exactly what the Big Government liberals in the U.S. want.  Of course, when they start running things everything will be perfect.  So they won’t make the same mistakes the Chinese have made.  Or the Greeks have, for that matter.  Even though they can’t point to a single success story in the history of Big Government liberalism.  For sharing the wealth and growing government has never increased economic activity.  But only led to growing bureaucracies and out of control spending.  Like the Chinese.  Only without their booming manufacturing sector powered by cheap labor to help pay for some of these costs.

No, China’s state capitalism is not the economic model to follow.  If you want robust economic activity you need to get the state out of the economy.  And let free market capitalism do its magic.  Like it did for the British during the Industrial Revolution in the 19th century.  And like it did for the Americans in the late 19th century and early 20th century.  Before the growth of government in both countries grew.  And sucked the life out of their economies.

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