Photo: iStock
Philip Pilkington
02/05/2024 09:00
The government exert direct control over investment undertaken by the large state-owned company sector, strong control over investment in regional infrastructure and, via the People’s Bank of China, indirect control over the residential property market.
Western economies are more free market in orientation. Although governments do engage in investment directly and central bank interest rates exert some influence on private sector investment and property markets, investment overall is left up to the whims of the markets. It is possible that in the future Western economies might experiment with China’s model of direct control over investment.
Economists like John Maynard Keynes thought that this would be the future of mixed capitalist economies, but in most Western economies this has not come to pass. It will be interesting to see whether in the future Western policymakers might approach Chinese policymakers to learn better how their system works and take lessons from the East that can applied in the West. But this would require a substantial restructuring of the way Western economies currently function and the institutions that manage them.
More modestly, countries can look East to learn how to nurture domestic industry. Chinese strategy here has two broad components. The first is openness to trade. Unlike Western countries, China does not try to weaponize its trade relations with sanctions to further its geopolitical goals. This openness to trade allows the Chinese to build world class businesses and industries. The second component is support to industries that China considers strategically important. China will look at long-term, integrated economic development, as it has done with its Big Fund subsidies to its domestic semiconductor industry which have recently borne fruit and allowed the country to overcome semiconductor sanctions.
A smaller country like Hungary cannot hope to become a key global semiconductor producer through subsidies and other policy measures. But it can look to other strategic sectors that will have downstream economic effects on the country’s economy. One such sector might be energy. Hungary is already in the process of furthering its nuclear industry with the construction of two new reactors at the Paks nuclear plant. But it might also be worth exploring the country’s natural gas potential. Hungary’s Makó gas field in the southeast of the country has enormous potential and could very likely be developed much faster if the government decided to prioritise the project.
The author is a macroeconomist, investment professional, and an external fellow at the Hungarian Institute of Foreign Affairs
