Free Trade Zones are the newest formation of state capitalism. Of course the contradiction here is that they pose as a form of free trade. When in fact the difference between them and state enterprizes is simply a matter of ownership. Name change really. Of course there are concrete structural differences to. But for all intents and purposes both are forms of state capitalism.
Whether they are called new economic zones; in Canada's Maritimes (dominated by call centres rather than the traditional use of these zones for manufacturing), Maquiadoras in the Caribean, Latin and South America, or Special Enterprize Zones zones in Asia and Aftica or economic reconstruction Zones in American inner cities, they remain a market distortion.
In India they are finding that the creation of these Special Enterprize Zones (SEZ) distort the market place. And since they are implemented as one of the tools of neo-liberalism to free the market of state control it is another contradiction of real existing captialism, rather than the text book capitalism of the Austrian or Chicago schools. Such text book capitalism showed its failure in the melt down of the Russian economy after its failed attempts to privatize with the collapse of the Soviet Union in 1989.
Attack on Indias economic zone plan
Since the passing of the Special Economic Zones Act in February, hundreds of businesses have rushed to take advantage of generous tax breaks, causing consternation in the finance ministry, the central bank and even the International Monetary Fund.Special economic zones have been established in several countries, most notably in China, where they attracted the foreign investment and know-how that were central to the modernisation programme launched in 1978. However, critics claim SEZs attract investment only by offering distortionary incentives rather than by building underlying competitiveness and can delay real economy-wide reform
But economists believe the proposed SEZs are unlikely to help Indian manufacturers achieve scale efficiencies, since 133 of the 267 are less than 1 square kilometre in area. The average size is just 4.2 sq km.
“Mega-sized SEZs are the ideal solution,” said Chetan Ahya of Morgan Stanley. “We believe that in today’s highly competitive globalised world, the concept of small-sized SEZs is completely outdated.”In a continuation of a long-running turf war with the commerce ministry, finance ministry officials said the scheme was providing unnecessary tax breaks to real estate development that would have taken place regardless of whether there was a SEZ scheme in place.
It remains the function of the state to create these zones, through cheap land, tax and regulation breaks, in particular labour laws, health and safety regulations, etc. In other words it is not about trade or even production but cheap manufacturing of goods, which can only be brought about by an attack on labours wages and benefits, which eat into surplus value (profit). When the neo-liberals call for de-regulation, ending red tape, etc. it is always the labour laws they focus on or laws that impact on workers. A couple examples from the Financial Times online should suffice to make the point.
UK in secret deal with Italy on China trade
Britain has just enough EU member states ready to support its exemption from the working time directive – seen as a vital part of Britain’s flexible labour market – but the coalition is flaky.But the proposed deal has hit a hitch: Italy has so far refused to give Britain the written assurances it wants on working hours. Communists and socialists in Mr Prodi’s coalition believe the UK’s working time “opt out” exploits workers and gives Britain an unfair advantage over countries where the 48-hour limit applies.
Another shift in ownership from an autarkic form of state capitalism to a monopoly state capitalism like India's (their so called Democratic State Capitalism) is currently occuring in China as part of its economic reforms. That is the creation of capitalist law, specifically bankruptcy law.
China state firms win stay of execution
The move, aimed at cushioning the social impact on employees of financially strained state companies, will slow the disposal of bad loans held by state banks and distressed debt companies and perhaps also reduce buyout opportunities for foreigners.
The bankrupcty law, passed in August after more than a decade of debate, is seen as crucial stage in China’s reforms as it enables creditors and investors to weed out underperforming companies by filing for bankruptcy to recover at least part of their funds.
However, the law, which is due to come into effect in June 2007, will not apply to 2,116 state-owned enterprises considered at financial risk by the Chinese authorities until at least the end of 2008.
In an interview with the Financial Times, Professor Li Shuguang, one of the authors of the new law, said that for those companies, employees’ health and wage claims would still take precedence over creditors’ claims, an arrangement that had so far slowed restructuring in some sectors.
Estimates of the claims by state employees range from hundreds to thousands of billions of renminbi, China’s currency.
In other words before the capitalist risks their investment, the public has alread invested more than the private capitalist ever would. Any change in the regulations of the state, do not minimize the state, they simply make it more open to the influence of monopoly capital for its own interest.
Private equity firms’ and foreign multinationals’ efforts to buy and restructure state companies would also suffer a setback.
Professor Li, who hosted a seminar for Wall Street analysts and investors at New York’s China Institute in September, said it was “the most important law in China’s development of a market economy”.
“It shows the central government’s commitment to introducing a market economy and to use the legal system to deal with the issues arising from a market economy. That would have been unthinkable 10 or even five years ago.”Actually the most important development of the Chinese economy in its transition to monopoly corporate state capitalism from the autarkic variety was the opening up of the banking system to foreign investment and the development of a stock exchange.
The later was further enhanced by China's take over of Hong Kong one of the biggest market exchanges in the world. While the PR was that this was the end of British colonial rule over the island and the end of the age old battle between China and Britain which began during the opium wars, Hong Kong's value was its investment and banking window onto the monopoly capitalist world.