Seth Kershaw

Econ 1600
Watson
Reflective Paper-State Capitalism and Emerging Economies

Thorough out the world only a few certain types of economic systems are recognized.
The market system, socialist/communist system, new traditional and old traditional economies,
and the informal economy to name some. Many people argue that the type of economy that
China has, and the type of economy that Russia had, is a different system in and of Itself-State
Capitalism.
Simply put, State Capitalism is an economic system in which the government engages in
for-profit economic activity, and manages the means of production as a state owned business. I
argue that this economic system is not viable, it will not pass the test of time, because I have seen
it personally. I spent multiple years in Mexico, a country that has a market economy. There is
however one (extremely large) company that was run by the Mexican government. Petrleos
Mexicanos or Mexican Petroleum Pemex is the only petroleum company in all of Mexico, in
2012 it reported a net income of US $390 Million. Mexico has the 17th largest oil reserves in the
world, and it is controlled by one government owned corporation.
I bring Pemex up because I saw first-hand, just how much the normal people hated it. I
lived in a town, Salamanca, that was built entirely around a Pemex oil refinery. My guess is that
75% of the people there were employed either directly or indirectly by Pemex. What I heard
more often than now was how the people hated that the government had a monopoly on the
petroleum industry, how the workers were treated poorly, how the people of Mexico had to pay
very high rates for gas because Pemex had a monopoly, and most of all how there was absolutely

rampant corruption. The common people did not like Pemex, and many wanted change to come
to the oil industry. In 2014 that change happened. The president Enrique Pea Nieto signed a bill
that would allow private oil companies to come to Mexico for the first time since 1938. The
Mexican government speculates it will receive $50 billion from foreign companies like Exxon
Mobil, Shell, BP, and Chevron. The people I knew personally were ecstatic about this change.
Just because an industry is run by the state, and is making money, does not mean it is the best
option, I see privatization of an industry to be much more economically successful for all parties
involved.
The economic system in Cuba is something unique in and of itself. It was for years a
communist economy under complete state control. With Ral Castro now leading the nation,
many aspects of the Cuban economy have been privatized in an attempt to grow economically.
The country has tried to make economic reforms, but these have been receiving opposition, as
was the case in Russia when the government attempted to privatize the economy. Many of those
in power, officials in the communist party, have much to lose if the economy is privatized and for
this they are opposed to the change. Even with the economic changes, Castro has said that the
economy will continue to be based on planning, not the market.
A state capitalistic system could take hold in Cuba, but only after drastic social change.
State capitalism is like a stepping stone from a planned economy to a market economy and as
was seen in Russia in the case of Boris Yeltsin, politicians dont wield the power necessary to
make economic reforms against the wishes of the communist party if they dont have the support
of the common people. If Cuba was to adopt a state capitalist economy, many of these powerful
politicians could still retain the power and money that they want, while still transitioning the
countrys economy to be based on the market rather than planning.

State Capitalism would not be a system that would stick around in Cuba, it would
however let the economy adjust in a more gradual manner from a planned economy to a full
market based capitalist system. It would let those who crave power and money retain it, and it
would give some structure and sense of planning for the people, many of whom have grown
dependent on government handouts.